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PUBLISHERS OF BOOKS FO R-^ 

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CHAIN STORES 

THEIR MANAGEMENT AND OPERATION 



BY 
WALTER S. HAYWARD, A. M. 



RESEARCH ENGINEER 



AND 



PERCIVAL WHITE, A. M. 

RESEARCH ENGINEER, AUTHOR OP "MARKET ANALYSIS, ITS PRINCIPLES AND METHODS*' 

With chapters by 
JOHN S. FLEEK, M. B. A. 
AND 
H^MAC INTYRE 



First Edition 



McGRAW-HILL BOOK COMPANY, Inc. 
NEW YORK: 370 SEVENTH AVENUE 

LONDON: 6 & 8 BOUVERIE ST., E. C. 4 

1922 



^- / 






Copyright, 1922, by the 
McGraw-Hill Book Company, Inc. 



THR M A P r. K P R H3 S S YORK F JL 



(0)CI.Afi77680 



I 






PREFACE 

-> The purpose of this book is to set forth the principles of chain 
store operation, organization, management, and control. It is 
intended not Tily for the use of the executive at chain store 
headquarters, but it is also particularly addressed to the branch 
store manager and his assistants. Furthermore, it is hoped that 
the book will prove stimulating to independent retailers and to 
others who are interested in the possibilities offered by the chain 
store movement. 

In the opinion of the authors, this movement is characteristic 
of all that is best in tendencies towards combination and scientific 
control. It is thoroughly American. It stands for scientific man- 
agement as applied to the great function of retail merchandising. 

Although this movement is still in its infancy, the chain store 
is probably the most highly developed exemplar of modern 
distribution methods. 

The first chapter is offered as a brief summary of findings, the 
intention being to give the reader a perspective of the subject 
before he comes to the more specific and detailed examination of 
the various phases of the problem. 

As a further means of clarifying the reader's ideas, an outline is 
placed at the head of each chapter, setting forth its main points 
in topical form. It is hoped that these outlines will prove valu- 
able for anyone desirous of obtaining in the most direct fashion a 
comprehensive knowledge of the subject. 

Without the assistance of many friends it would have been 
impossible to complete this work. In addition to those men- 
tioned in the text, grateful acknowledgment is made to the 
following for their assistance : 

Messrs. F. B. Barton, of Akron, Ohio, Robert M. Updegraff, 
of the Displays Company, New York City, Malcolm P. McNair, 
Instructor in Marketing, Prof. Donald K. David, Assistant 
dean and assistant professor of marketing. Graduate School of 
Business, Harvard University, Philip Remington, Lyman Armes, 



vi PREFACE 

of Wood, Putnam & Wood, Allen Wood, of Wood, Putnam & 
Wood, Alden C. Kenyon, of Wood, Putnam & Wood, Frederick 
J. Mullen, of the Boston News Bureau, Philip Burbank, of the 
H. B. Humphrey Advertising Agency, Mort Hamburger, of the 
Federal System of Bakeries, Charles Coolidge Parlin, of Curtis 
Publishing Company, H. C. Parson, president the Woolworth 
Co., Charles E. Merrill, of Merrill, Lynch & Co., W. T. Grant, 
president of the W. T. Grant Company Department Stores, 
Benjamin F. Meyers, editor of The Haberdasher, Harold Snyder, 
of Spear and Company, New York City, S. H. Ditchett, editor 
of the Dry Goods Economist, Alexander New, president of the 
Mercantile Stores Corporation, Inc., Alfred H. Beckmann, 
secretary-treasurer of the National Chain Store Grocers' 
Association, Paul J. Mandabach, editorial director, Drug Store 
Merchandising and Confectionery Merchandising, B. B. Wilson, 
associate editor. The Music Trade Review, E. Hubbard, associate 
editor. The American Hatter, Richard D. Wyckoff, J. B. Levey, 
general sales manager. United Shirt Shops, Wm. Henry Smith, 
of the United Shoe Machinery Corporation, H. J. Schuell, 
general manager. The Druggists Circular, H. B. Hanser, assistant 
general manager, The Variety Goods Magazine, Bertrand L. 
Chapman, manager of Merchandising Department, the New 
York World, Kingman Brewster, attorney, D. Walter Morton, 
Educational Director, J. C. Penney Co. 

Thanks are also due to Mrs. Walter S. Hay ward for the prep- 
aration of illustrations and for editorial assistance, and to Charles 
G. Wheeler for his invaluable help in reading manuscript. 

F. J. Arkins of the Alexander Hamilton Institute has been of 
great assistance, not only in supplying bibliographical data but 
in actual constructive suggestions and reading proof. 

As it is the intention of the authors to keep this book up-to- 
date, they would appreciate suggestions from readers calculated 
to be of assistance in making revisions. 

Walter S. Hayward. 
Percival White. 
New York, N. Y., 
May 15, 1922. 



CONTENTS 

Page 

Preface v 

INTRODUCTORY 

Chapter 

I. The Principles of Chain Store Operation 1 • 

II. The Chain Store Field 16 

PHYSICAL ASPECTS 

III. Locating the Store SI** 

IV. The Member Store 55 •" 

MERCHANDISING PROBLEMS 

V. Purchasing 71 

VI. The Warehouse 84 

VII. The Sales Problem 97 

VIII. Competition 115 

IX. Pricing and Turnover . 129 

X. Expenses and Profits 145 

XL Advertising 162 

PERSONNEL 

XII. Organization 181 

XIII. Training Men for Promotion 197 

XIV. Maintaining Morale 218 

XV. The Store Manager 232 

CONTROL AND EXPANSION 

XVI. Warehousing and Purchasing Records 243 

XVII. Supervision of Retail Outlets 264 

XVIII. Centralizing Executive Control. . .• 281 

XIX. Financing and Growth 294 

XX. Insurance 309 

VARIETIES OF CHAIN STORES 

XXI. The Manufacturer's Chain 318 

XXII. The Grocery Chain 330 

XXIII. The Drug Store Chain 342 

XXIV. Five-Ten- Twenty-Five-Cent Store Chain 363 

XXV. Drygoods and Clothing Chains 374 

XXVI. Other Chain Fields 385 

Bibliography 393 

vii 



J\ 



,. 1 



CHAPTER I 
THE PRINCIPLES OF CHAIN STORE OPERATION 

Outline 

Chain store principles of four kinds. 

1. Physical aspects of store location and construction. 

2. Methods of operation. 

3. Men. 

4. System of control and coordination. 
Physical aspects. 

1. Locate 

(a) According to analysis of product. 
{b) According to analysis of traffic. 

2. Standardize. 

(a) Appearance of store. 

1. Store front. 

2. Size. 

3. Stock. 

4. Window trinas. 
Methods. 

1. Purchase 

(a) At headquarters 

(h) Direct from manufacturer. 

(c) For cash. 

(d) Enough and no more. 

2. The warehouse 

(a) Keep adequate and fresh supply of stock. 

(b) Fill orders with speed and accuracy from well-arranged stock. 

(c) Keep warehouse overhead down by standardization of method. 

3. Sales methods. 

(a) Suit product to wants of community. 

1. Carry only standard sizes. 

2. Avoid style articles. 

(b) Mark prices in accordance with 

1. Cost to chain. 

2. Overhead expense. 

3. Sales expense. 

4. Necessary profit. 

(c) Keep every line turning at a profit. 

4. Eliminate unnecessary expenses. 

(a) Conduct business on cash basis. 

1 



2 CHAIN STORES 

(h) Charge extra for deliveries. 
5. Take advantage of benefits of publicity. 

(a) Display. 

(b) Advertising. 
Men. 

1. Choose men carefully 

(a) Who have interest in work. 

(b) Who show signs of promise. 

2. Train men carefully. 

(a) Start at bottom and work up. 

3. Pay personnel adequately. 

(a) By some form of bonus on sales, profits, etc. 

4. Promote men on merit alone. 

5. Maintain morale 

(a) By discipline. 

(b) By infusing spirit of goodwill. 
Control and coordination 

1. Keep careful and complete records 

(a) Of warehousing and purchasing. 

(b) Of overhead expenses. 

(c) Of independent store statistics. 



CHAPTER I 
THE PRINCIPLES OF CHAIN STORE OPERATION 

What IS a chain store? This term is generally applied to 
a group of two or more retail stores, dealing in the same line 
of goods, and under the same central management. Each store, 
although a separate unit, has certain features in common with 
the rest, whether in purchasing, merchandising, or accounting. 
The degree of independence possessed by the individual stores 
varies from almost complete independence, as in some dry goods 
chains, to the closest inter-dependence, in those cases where the 
manager is hardly more than a head clerk. 

How does a branch house differ from the chain store? In many 
cases this is hard to define since the ordinary branch store is in 
reality a chain store. The term '^branch'' is frequently apphed 
to the several links of a manufacturer's chain. An independent 
retailer with two or three stores commonly calls them ^^branches,'' 
although they are in reahty members of a chain. 

An agency is not a chain store, although frequently this term 
is applied to such organizations as the United Drug Co.'s 
agencies. A ^^RexalP' store, it is true, handles the manufactured 
products of the United Drug Co., but there is no executive 
control. The individual agency is an entity in itself and is self- 
governing. No chain store can ever run counter to the policy 
of the organization to which it belongs. 

In discussing the general principles on which chain stores 
are conducted, it is difficult to include only methods and policies 
of unique application. Many of these principles can be applied 
equally well to an independent retailer. In the last analysis, a 
chain is nothing more than a collection of retail stores dealing in 
the same products and guided by the same pohcies, profiting by 
the same economies and correcting the same mistakes. 

The principles of chain store operation may be divided into 
four sections, the first dealing with conditions already existing, 
the second with merchandising policies, the third with chain 

3 



4 CHAIN STORES 

personnel, and the fourth with the control of chain activities 
through records and statistics and the interpretation and 
application of these data. 

The Physical Aspects. — Under this first heading come all those 
factors which are outside the power of the chain to create but by 
which it can profit if it will take advantage of them. Of all the 
principles involved these are perhaps the most fundamental 
because they deal with unalterable facts. The correct location 
of a store, for example, is always an essential factor. Again, 
there is a size for a store which is just right to accommodate its 
traffic and trade. Anything larger would be waste; anything 
smaller would be inefficient. 

These physical aspects are known conditions, possible to 
estimate and forecast. The man who first put them to practical 
use, George J. Whelan, became a millionnaire. The example of 
success is irresistible. Today, all scientifically managed chains 
realize that the physical aspects of retailing must be reckoned 
with. If no use is made of location, then some other method, 
notably advertising, must be used to attract trade . 

There are three steps involved in the problem of locating 
a store. 



1. Analyze the product. 

2. Analyze the locality. 

3. Analyze the traffic. 



'ingfl 



There is a proper site for the store and it can be found by using 
this method. If the products to be sold are mainly convenience 
goods, that is, goods which are the same wherever purchased, 
such as cigarettes, groceries, notions, etc., the site should be on 
the stream of traffic. If the products are ^'shopping lines,'' 
or if there is something in the article or the service which will 
induce people to leave their accustomed path to purchase, the 
store may be away from usual traffic. But, in this event, it 
must resort to publicity and advertising to acquaint people with 
what it has to offer. 

Next, analyze the locahty. Who are to be your neighbors? 
What do they sell? A five and ten cent store can be found close 
to the department store like the pilot fish by the shark. Which 
side of the street is the shady side? Women prefer it. 



THE PRINCIPLES OF CHAIN STORE OPERATION 5 

Last of all, analyze the traffic. Note the number of passers- 
by and the direction in which they are going. Note the hours at 
which this traffic is heaviest and the relative number of women 
and men of which it is composed. Last of all, note the character 
of the traffic. Is it mainly composed of men and women going 
to and from work? Of shoppers? Of commuters? What is 
their rank and station? It is the buying power of the traffic 
which we must determine. 

Thus, the first principle of chain store operation is to locate the 
member stores in relation to the nature of the products to be sold, 
the character of the locality, and a careful analysis of the traffic. 
There is a right place: find it. 

The second principle is to suit the store itself to the product, 
the locality, and the traffic. 

*Take advantage of the principles of display. Design a store 
front in harmony with the character of the organization- and the 
localities in which it sells. Make the exterior of the store com- 
bine with the location to act as a drawing attraction for the 
public. Make the interior of the store large enough to utilize 
every inch of working space, and no larger. Arrange the stock 
so that it appears at its best. Furthermore, arrange it so as to 
make the most of the points of sales vantage. Traffic, in a store 
as well as outside, follows certain channels. And when the ^^one 
best way'' for arranging a store has been determined, the same 
plan can usually be used as a model throughout the chain. 

The window display is one of the most important points in 
the physical appearance of the member store. More people buy 
as a result of what they see than for any other reason. Good 
window displays, and good table displays sell goods. And last of 
all, keep stores neat and attractive. This will create favorable 
notice. 

The essence of this part of chain operation is lo take advantage, 
as far as possible, of things as they are, and of people as they are. 
i This is a study in human nature and psychology. Choose the 
i proper location and your customers will come to you. 

Merchandising Policies. — The purpose of all chain store 

I policies is to sell goods at a profit. As all other retailers are in 

business with this same purpose in mind, it follows that the most 

1 efficient will be the most successful. How is this efficiency to be 



6 CHAIN STORES 

obtained? The independent retailer makes a success by personal 
supervision and by personal service. He can vary his policy 
to suit his customer. But the chain is more impersonal. Its 
policies, like its store fronts, must be standardized. And 
this principle pervades the whole chain structure. Appearance, 
arrangement of stock, price, wages, everything is standardized. 
Instead of personal service, we have standard practice. Human 
nature cannot be standardized, but almost everything else can. 

The merchandising policies of a retail chain are chiefly con- 
fined to obtaining products of the highest quality at the lowest 
price, and selling as large an amount of them as possible at 
the lowest expense and the largest profit consistent with rapid 
turnover. 

Purchasing. — As far as possible, all buying for the chain 
should be done at headquarters. There are several reasons for 
this. In the first place, the larger the purchase, the greater the 
quantity discount. In the second place, the purchasing agent of 
the chain can buy direct, and in this way save the jobbers' 
discount as well as obtain the quantity discount. Although 
at one time there was much reluctance on the part of manufac- 
turers to accede to this policy, there is less objection offered at 
the present time. 

The purchasing agent of the chain, if he is not located or 
directly represented at the market, should go where the article 
he wishes to buy is, and offer cash for it. If the manufacturer 
fears it will be impossible to make the goods to retail at the price 
the chain wishes to sell them for, the purchasing agent may be 
able to show the manufacturer how it can be done. The ques- 
tion of how much to buy is a problem facing all purchasing 
agents, and in the case of the chain is scientifically determined 
by records, as explained later. 

The principles of chain store purchasing may be summed up 
under four headings : 

1. All purchasing should be done through headquarters, 

2. Buy as directly as possible, preferably from the source, 

3. Pay cash. 

4. Do not overload. 

Overloading, and other evils, will be minimized by proper 
executive control, and the coordination between departments. 



THE PRINCIPLES OF CHAIN STORE OPERATION 7 

Warehousing.^In an effort to simplify distribution, the majority 
of chain stores have taken upon themselves the warehousing 
function. That is, they store all goods purchased and delivered 
until such time as they are requisitioned by the member stores. 
This reduces freight charges, and gives assurance that goods 
will be available when needed. 

The warehouse must be located with respect, first to the routes 
by which articles are received, and second to the position of the 
member stores. If the jobber's profit is to be saved this is 
exceedingly important. 

The main principles of warehouse management are three: 

1. Maintain an adequate and fresh supply of stock. On this point 
depends the efficiency of distribution to member stores. Articles listed 
as being in stock must actually be in stock. Of course, there will be unavoid- 
able cases where goods will get out of stock, but these must be kept at a 
minimum. 

2. Orders from member stores must be filled with speed and accuracy. 
If there is any lapse in the rapidity of distribution lost sales will be the 
result. 

3. Expenses must be kept down. The expense of warehousing is taken 
care of in the central organization, and it forms a part of the general over- 
head expenditures. That is, each store must bear a certain percentage of 
this cost of storing and distributing goods. 

All stock in warehouses should be arranged logically with 
consideration to the frequency with which it must be moved 
and the actual labor of moving. Heavy goods, for example, 
should be nearest the loading point. A regular position for each 
article of merchandise helps in speed of handling, and eliminates 
mistakes. By placing old goods in front, the stock can constantly 
be kept fresh. In the warehouse, as in the store, the layout may 
advantageously be standardized. 

Sales. — Study the sales records and take advantage of the 

information they have to offer. No other documents are so 

valuable or so easy to read. Analyze the daily sales. See how 

sales for Fridays and Saturdays compare with those of other 

days. Many chains find that their sales are almost double on 

I these days and they make preparation accordingly. Study also 

[ the influence of weather on the volume of trade. Learn how to 

! distribute the seasonal rush over a period of time in order that no 

, sales may be lost through overcrowding. 



8 CHAIN STORES 

Minimize sales resistance by giving the public what the 
public wants. Sales resistance eats up profits. Therefore, 
study the product from the sales angle. Is it in demand? Is 
there another product which the pubhc prefers? 

A chain organization, because of its impersonal character, 
and the nature of its organization, should stock only standard 
goods. Odd sizes, unknown brands, style goods, are all too much 
of a risk, regardless of the amount of the profit. The wise chain 
store executive always remembers that it is not the length of the 
profit but the rapidity of the turnover which counts in the long 
run. And he, therefore, limits the number of lines offered to the 
public. He limits these, furthermore, according to the desires of 
the public. Where possible, a chain deals in packaged goods. 
There are few successful chains dealing in bulk products. The 
selling expense is too high. 

The chain store should cater to the majority of its customers 
and let the few who wish special services or special products go 
elsewhere. The loss of a few customers will be more than made 
up by the increased efficiency in the management of the store and 
the ability to satisfy the wants of the great bulk of the customers. 

Should a chain store manufacture and sell its own private 
brands? So many of them follow this pohcy that the idea has 
almost become inseparable from that of chain store operation. 
No set rule on this point can be laid down. 

The arguments in favor of private brands can be reduced to 
three. First, it allows the chain to make extra profit, since it 
permits a manufacturing profit as well as the jobbing and selling 
profits. Second, the private brand is often of immense adver- 
tising value. Third, private brands give the chain a source of 
supply independent of any manufacturers. Against this, it can 
be argued that the public as a whole will ask for nationally 
advertised goods. The reply of the chains is to stock the nation- 
ally advertised goods and allow their own goods to compete on a 
quantity and price basis, the method used being display. 

Pricing and Turnover. — The retail price should be uniform in 
all stores, except, perhaps, for a difference justified by additional 
freight rates. This principle is almost self-evident. It would be 
disastrous to the chain if a customer were to find that at Store 
No. 10 prices were different from those at No. 15. The price of 



THE PRINCIPLES OF CHAIN STORE OPERATION 9 

goods should be fixed when possible by marking up the value a 
certain percentage over cost. This mark-up will vary with the 
nature of the product and the competition. Price cutting is 
always dangerous. It instils doubt in the mind of the customer 
as to the genuine values offered by the store and it makes it more 
difficult to sell the product later at the normal price. 

The larger the turnover, the less profit it is necessary to make 
on each sale in order to show satisfactory results. That is, 
volume of sales reduces overhead and increases profits. Turn- 
over of merchandise is increased by increasing sales, while the 
stock remains stationary or increases less rapidly. 

But volume of turnover is not sufficient. There is one other 
element. Keep every line turning. Do not stock lines that will 
not sell. If some line is in stock which will not move, try to 
shift it to some store where it will. Such a store can usually 
be found in a chain of any size. If the stock of the article is 
too large for such methods, or if there is no such store to be 
! found, reduce the price and turn the goods, even at a loss. 

The chief merchandising appeal of the average chain is price. 

I A low price is secured by efficient purchasing, low overhead, 

and large turnover. The first two yield in importance to the 

' last. Also, as chains grow, and their goodwill increases, a repu- 

, tation for quality and service make as strong an appeal as 

price. 

Expense and Profits. — Each store in a chain will show the 
\ same amount approximately for expense as its independent 
competitor, less the economies effected by increased turnover, 
and the elimination of credit accounts and deliveries. When 
I sales are large the overhead goes down, because the turnover has 
' increased. By increasing the average sale, profits are increased 
j also, due to decreased selling expenses. 

I Profits come with standardization of method. Generally, 
I overhead is larger in small chains and smaller in large chains 
i because of this very factor of standardization. Chain standards 
and practices are evolved slowly by experience. A new chain 
I cannot hope to accomplish in a few months what normally takes 
I many years. 

I Generally speaking, chain stores find it the best policy to do 
[business for cash. This eliminates bad debts and simplifies 



10 CHAIN STORES 

accounting practice. In almost every case where credit has been 
eUminated, the result has been increased net profits for the 
organization. 

The question of deliveries is harder to settle. Some chains 
deliver on payment of a certain amount extra, sufficient to cover 
delivery charges. 

Watch the individual stores. Ascertain the reasons why cer- 
tain of them pay well month after month. The lessons learned in 
this way can be applied with benefit to those which do not pay 
well. 

Every store should earn a profit, unless there is some strong 
reason, such as competition, which makes it impossible. A 
new store will take a certain length of time to become established. 
If an old store shows consistent losses, and no other reason can 
be found except lack of adequate volume of sales, this store should 
be closed and a new one started in some better favored location. 
The wise chain executive knows how to take a loss as well as 
make profits. Mistakes are made in spite of the highest degree 
of standardization. It is his business to see that these mistakes 
occur as seldom as possible. 

Keep expenses down. Establish percentages, based on records, 
which can be applied to all member stores. Investigate any store 
the itemized expenses of which exceed the allowed percentage. 
By means of daily reports, see that expenses are reduced to a 
minimum, keep every line of goods turning at a profit, and profits 
for the entire organization should be forthcoming. 

Advertising. — Every retailer must let the public know where he 
is located and what he has to offer. This can be done in one 
of two ways. The first is to estabUsh the business where the 
traffic will pass, and to display the goods in the windows so that 
all who pass may see. The second is what is technically known 
as advertising, that is, giving the people the same information 
through the medium of magazines, newspapers, theatre programs, 
etc. All chains use the first method to a greater or less extent. 
Few chains have used the latter method in the past, more are 
using it now, and the probability is that in the future the 
majority of chains will use paid space in certain media of 
publicity. 

The type of advertising done by the chain depends on 



THE PRINCIPLES OF CHAIN STORE OPERATION 11 

1. The size of the chain, 

2. The type of product or products sold, 

3. The location of the store. 



The larger the chain, the better use it can make of adver- 
tising. The more elastic the demand for the products sold, the 
more stimulus can be given to sales by advertising. The type 
of advertising necessary depends a great deal upon the location 
of the store. Stores out of the line of traffic must do more 
advertising to attract trade. 

Advertising should be initiated at headquarters as far as 
possible, although local conditions may make special advertising 
necessary. In local or semi-local chains, advertising can be 
standardized. In larger chains, allowance will be made for local, 
sectional, climatic differences, etc. 

Few chains can advertise nationally with profit. But few 
chains can afford not to undertake some form of local advertising. 

Personnel. — Are methods or men more important in chain 
store operation? This question has long been argued and seems 
no nearer settlement than before. The methods are necessary, 
but the men to carry them out are even more important. No 
matter how well standardized the procedure and the policy of a 
, chain may be, it will not operate profitably unless there is a 
coordinating personal influence which binds the whole together, 
; making it work in harmony. 

I Like the great railway magnates of the past century who 

virtually created opportunity out of what they saw, the pioneer 

.chain executives have built up vast retailing enterprises against 

I the strongest competition. They built the machine, but, as with 

'the railways, they had to have men to run the engines. The 

i chain store locomotives are the local store managers. From this 

\ local store there is a direct line to the central office which must be 

kept clear. Merchandise must go forward, daily reports must 

come back. The district manager sits at his desk like a train 

despatcher signalling a clear road for the trains in his district. 

The function of each man in a chain store organization should 
be clearly defined, from the chief executive down to the humblest 
clerk. And each member of the organization must feel an interest 
in his work. How shall this interest be created? By giving 



12 CHAIN STORES 

each member a monetary profit in the operations of the concern, 
and making this profit commensurate with the work he himself 
does. Even the clerk will sell more goods if he or she receives 
extra profit for so doing. 

It pays the chain to employ brains, even at a high price. 
The executive, the buyer, the window trimmer, the accountant, 
all are experts in their line, and worthy of their hire. 

Training and Promotion. — Choosing the right man in the 
beginning saves much trouble. The chain store's employment 
department should pick and choose carefully only those men and 
women whom it considers as possessing the requisite characteris- 
tics for success in the organization. 

It will pay the company to train the clerk before actually 
putting him behind the counter. He should be taught the stand- 
ardized sales policies and methods of the chain, the nature of 
the product he is selling, the arrangement of the stock in the 
store, the habit of being courteous to customers under all con- 
ditions, etc. This prehminary training will result in more sales 
for the company and a larger bonus for the clerk. 

Start all men at the bottom and let theto work up. Do not 
look outside the organization to fill executive positions. There 
should be plenty of good executive material under training at the 
moment, possessing the great advantage of a thorough knowledge 
of the chain and its ways. Avoid labor turnover. If men are 
anxious to leave the employ of the chain, there must be some-, 
thing wrong. A concern that makes adequate allowance 
for the store cat but starves the store manager will find in th^ 
long run that its economy has been ill-directed. 

Promotions should take place mainly on merit. Length of 
service is seldom a substitute for ability. 

Morale. — The chain organization is held together by morale. 
Morale is a combination of discipline and teamwork which carries 
out methods and even betters them. A proper system of morale 
makes every individual in the organization morally and finan- 
cially responsible for the duties of his position. 

The higher the morale, the less necessity for policing. Chains 
should keep careful watch on all activities of their personnel, 
but the best safeguard for it is the morale of the organization. 
Morale creates teamwork and cooperation. It makes it easier to 



THE PRINCIPLES OF CHAIN STORE OPERATION 13 

coordinate the various functions of the business. It fuses the 
sales activity and creates goodwill towards the management 
among the employees. 

Morale should be inspirational and instructive, without 
cheapening the effect by using the style of language so frequently 
encountered in sales bulletins. Every man likes encouragement 
and it costs little to give it to him. Every man works better 
when he is interested in his work. Make him interested. Let 
him know he will receive a bonus for his sales efforts. Let him 
know that what he does is appreciated. 

It is not laid down as a principle that a chain should publish 
a house organ, but it is laid down that there should be some 
established method of publicity by which the central office 
can let the member stores know what is going on both at head- 
quarters and among the other stores. The larger organizations 
frequently pubhsh house organs as a way to solve the difficulty. 
Smaller concerns send out sales bulletins and letters. In local 
chains, the owner can pay a daily visit, or keep in touch by 
telephone. 

In handling the personnel, the problem resolves itself into 
one of training and choosing men of the type which can take 
charge of a retail store and operate it by routine methods, with 
partial supervision. It offers a large field for the great number 
of men who must always work under someone else^s guidance. 
Choose your men carefully, train them properly, and keep up the 
level of the morale. 

i Control. — All the manifold activities of the chain can be 
controlled only by means of records. Records are a fundamental 
I necessity in every chain. By means of them the purchasing 
agent buys goods to sell through retail stores and estimates the 
quantities necessary to keep on hand in the warehouse. By 
f means of records, the sales manager keeps track of the sales in 
[various stores and can tell at a glance which stores are doing 
well and which are falling behind. By means of records, the 
^auditor tells whether overhead expenses are too high. Lastly, by 
jmeans of records the executive control is exercised. 
I The average small retail store keeps few accounts, because the 
ifacts are supposedly contained in the head of the owner. But all 
the necessary information in the chain is tabulated. It under- 



14 CHAIN STORES 

goes a regular digestive process until it is finally served up to the 
chief executive in the form of percentages and profits. 

The records of the chain are one of its most valuable 
possessions. Extending back over a series of years, they contain 
in essence the results of past experience. By looking back, the 
chain can tell approximately what to expect in every line and 
phase of its activity. Should it plan to start another store, the 
records should tell what a store in such a location should earn. 
When sales are reported each month, the sales manager can see 
whether the amount is less than it was a year ago at the same 
time, or more. 

All chain stores should keep a continual, automatic inventory 
of stock on hand in warehouses, and in some cases in each store. 
Adequate turnover of all lines can be controlled in no other way. 

Records fall into three main divisions: 

1. Warehousing and purchasing records, 

2. Accounting records, overhead, salaries, etc., 

3. Records of individual retail stores. 

Taken collectively, they form the basis of the chain^s opera- 
tion, and the person in authority knows daily exactly where 
his company stands in every detail. Thus, the principle follows 
that the chain should have records so complete in every detail 
as to allow the executive at any time to ascertain the exact 
status of any store in the chain, any warehouse, any manager's 
record, and all overhead expenses. 

The Principles of Growth. — Everything previously discusse 
leads us to this point : A successful chain grows larger. It adds 
more links; it takes in more territory. 

Ordinarily, a chain should expand naturally by utilizing the 
profits made in old stores to start new ones. The great majority 
of chains have been financed in this way, and this is without 
doubt the soundest method. 

But a chain can also expand by absorbing other chains and by 
adding them to its organization. 

Lastly, a chain can borrow money and start a number of 
retail links at one time. This is the most hazardous method, and 
should 1)0 carefully investigated before being attempted. 

Chains grow not only as their financial resources expand. 



I 



THE PRINCIPLES OF CHAIN STORE OPERATION 15 

but also as their trained personnel grows larger. New stores 
must be opened for new potential store managers, as they become 
trained in the methods and policies of the organization. 

Chains are found chiefly in congested centers of population, 
and they occupy this territory principally because the physical 
advantages are greater. The traffic being heavier, the volume 
of trade per store is greater. When urban locations are taken 
up, those chains the member stores of which require a minimum 
of population for successful operation extend their activities to 
the suburbs. A grocery store, for example, can operate on a 
population of ten thousand successfully. (There are some chains, 
of course, which purposely confine themselves to the smaller 
towns.) 

Watch the normal growth of population if you wish to extend 
your program. Natural causes, or unusual stimulus to growth, 
make new sites continually available. If you do not take 
advantage of this some one else will. 

Conclusions. — Out of the mass of specific principles for chain 
store operation, two fundamentals emerge, one having to do with 
methods primarily, the other having to do primarily with men. 
In other words, the fundamentals are those of standardization 
and of coordination. Chain store practice should be standard- 
ized as far as possible. The chain store personnel should coordi- 
nate effort and practice. 

All other principles must be connected one with another so as 
to make the process of operation smooth. The major part of 
this book is devoted to showing how methods and practice may 
be standardized and how all activities may be united into a 
smoothly functioning organization through the mechanism of 
records. Records are always a means; never an end. The 
chain does not exist to make records, but to use them. The 
routine of chain store operation merely supplies the necessary cogs 
which will make the whole function smoothly and in unison. 



CHAPTER II 
THE CHAIN STORE FIELD 

Outline 

Classification of chain stores. 

1. Geographical. 

2. According to policy. 

3. Type of organization. 

4. According to product sold. 
Geographical. 

1. National chains. 

(a) Comparatively few. 

(b) Follow lines of population. 

2. Sectional. 

(a) Larger number. 

3. Local chains. 

(a) By far the greatest in number. 
Operating policy. 

1. Saving in price by cutting out 

(a) Credit. 

(b) Deliveries. 

(c) Telephones. 

(d) Miscellaneous. 

2. Self service stores. 

(a) Thus far limited to grocery lines and restaurants. 
Organization. 

1. Closely centralized. 

(a) Authority of store manager closely limited. 

2. Loosely connected. 

(a) Authority of store manager broad. 

3. Partnership type. 

4. Manufacturers' chains. 

5. Agency plan. 
Type of product sold. 

1. Material products. 

(a) Necessities. 

(6) Semi-necessities. 

2. Services. 
Trends. 

1. Combination. 

16 



THE CHAIN STORE FIELD 17 

(a) Secures additional capital. 

(a) Allows new operating economies. 

1. Reduced overhead. 

2. Increased purchasing power. 

(c) Increases rate of expansion. 

(d) Increases territorial extent. 

(e) Relieves pressure of competition. 
Manufacturing by chains. 

(a) Private brand. 

1. Gives chain unfailing source of supply of uniform quality. 

2. Tends to reduce cost of advertised articles. 



CHAPTER II 



THE CHAIN STORE FIELD 



The chain store movement is as yet in its infancy. Judged by 
the comparatively recent origin of the movement, its rapid 
and unchecked growth, there is an economic place for chain j 
stores in the life of the community. They help in no small way to ! 
keep the cost of living down and to stabilize retail prices. For 
example, when prices fell after the war, the canners reduced their 
prices. The jobbers passed on the saving to the small retailers, 
and there the saving stopped. The small retailer could not see 
far enough ahead to realize that he must pocket his loss and 
reduce his prices. But the chain grocery stores, buying direct 
of the canner, immediately revised prices in line with the new 
quotations. 

The economic trend of the times is towards more direct dis- 
tribution and a more rapid reflection of the course of whole- 
sale prices in the retail field. The chain stores are working in 
accordance with this tendency and not against it. So far, the 
experiment has been limited to comparatively few types of 
products, but each year sees new chains in new fields, apparently 
prospering in the venture. Most independent retailers have 
ceased declaiming against the chain store and predicting its 
failure. They are accepting it as an accomplished fact, and their 
aim is to imitate, as far as possible, the methods used by the 
chains in obtaining their success, even to the extent of starting 
chains themselves. 

The field of retailing has been immensely broadened. It now 
offers opportunity to men of ambition and vision. Brains 
came first, and then capital. The great founders of the present 
day chain stores created them out of profits. Capital was slow 
in following the lead or realizing that a new field had been created 
for exploitation. Capital had been too much occupied with 
the profits of production and had paid little attention to those 

18 



THE CHAIN STORE FIELD 19 

of selling. The past century was the great age of productive 
effort in the world. The present century seems to be turning 
towards scientific sales effort. The chain store organizations 
have gone farthest with their experiments towards creating an 
efficient method of bringing the product to the consumer. 

The Inception of the Movement. — The credit for founding the 
first large chain of stores belongs to George H. Hartford, the 
originator and, until his death, the president of the Great Atlantic 
& Pacific Tea Co. In 1857 he was in the hide and leather busi- 
ness in New York, and in 1859 he added tea as a sideline. This 
venture was so successful that in 1864 he organized the Great 
American Tea Co. Then it occurred to him that it would be 
possible to have a chain of retail stores throughout New York 
and Brooklyn and in a few years he had a chain of 25 stores, 
called the Great Atlantic & Pacific Tea Co. 

The dates of founding some of the more important chains are 
as follows : 

Great Atlantic & Pacific Tea Co 1859 

Jones Tea Co 1872 

F. W. Woolworth Co 1879 

James Butler 1882 

Hanan Shoe Co r. 1885 

Acme Tea Co. (Now part of American Stores Cor- 
poration) 1887 

S. S. Kresge Co 1897 

United Cigar Stores Co 1900 

J. C. Penney Co 1902 

The greater part of the development of these chains has 
taken place within the last 20 years, but it is interesting to note 
that all the earlier chains have attained considerable size and 
prominence. The Great Atlantic & Pacific Tea Co. is still far 
ahead of all others in the number of stores operated. The date of 
the Hanan Shoe Co.^s starting its chain of retail stores shows 
that the idea of a manufacturer's chain was conceived compara- 
tively early in the development, and the far greater expansion of 
the purely retail chains makes it seem that these chains will be 
the ultimate type. 

Tjrpes of Chain Stores. — Chains may be classified in several 
ways, each one of which offers valuable points for analysis. 
They are : 



20 CHAIN STORES 

1. Geographical Extent. — Under this heading chains may be divided into 

(a) National. 

(b) Sectional. 

(c) Local. 

2. Policy — Under this heading come those particular sales and merchandis- 

ing principles according to which the chain is operated, 
(a) Cash and carry. 
(/>) Self service. 

3. Organization. — Chains have shown considerable variation on this point, 

due to difficulty in standardizing both men and methods. 

(a) Closely centralized type. 

(b) Loosely coimected. 

(c) ''Penney" type. 
((/) Combination of types. 

4. The Product Sold. — This question of the product was at first compara- 

tively limited, but in recent years it has been extended to such 
intangible products as places of amusement, barber shops, hotels, 
and other institutions offering service rather than a tangible product. 

Chains Considered Geographically. — There are few national 
chains, if by national we mean operating stores in every or nearly 
every state in the union. Among the large chains, the Great 
Atlantic & Pacific Tea Co., the F. W. Woolworth Co., and the 
United Cigar Stores Co. are the outstanding examples. Each 
of these chains has followed a policy of locating in the larger 
centers of population first. 

The F. W. Woolworth Co. claims to have a store in every 
town containing 8,000 inhabitants or over. Figure 1 shows how 
their stores are distributed. The great majority of these stores 
are located in New l^^ngland and the Middle Western States, 
with New York and Pennsylvania in the lead. The growth of 
this chain will obviously follow the lines of population, and if 
the inhabitants of the South or the West gather more in the future 
in cities and towns, the Woolworth stores will follow them. 

A great many chains are sectional, that is, they have outgrown 
their purely local character and have extended into the neighbor- 
hood. Some of these sectional chains, such as the Louis K. 
Liggett Co., show signs already of becoming national. The 
Liggett Co. with fifty-five stores in New York City and nineteen 
in Boston, eight in Philadelphia, and eight in Washington, has 
already extended its operations as far South as Georgia and 
Florida, and as far West as Oklahoma and Minnesota. Many 



THE CHAIN STORE FIELD 



21 




22 CHAIN STORES 

grocery chains are sectional, such as the Kroger Grocery & 
Baking Co. in the Middle West, the John T. Connor Co. in 
Massachusetts, and the Mayflower Stores in Rhode Island. 

Last of all, come the local chains, which form the bulk of the 
field, chains with two, three, five or ten links, all closely con- 
nected in the city or its immediate surroundings. 

Few chains are started with the definite idea of making them 
national or even sectional. The growth is usually gradual and 
the steps in the growth perfectly logical. The local chain, which is 
superior in its methods, becomes sectional. The sectional chain 
keeps on expanding until it becomes too large to be called 
sectional, and becomes national. 

Chains Considered According to Operating Policy. — The 
chain store's great appeal to the public has been saving in price. 
To attain this end, chain managements have been constantly 
scheming how to sell their goods at a greater saving. In 1912, 
the Great Atlantic & Pacific Tea Co. did away with telephones, 
deliveries and credits, and the company claims that from this 
change a 65 per cent, increase in business has come about. 
This policy met, in fact, with instant approval from the purchas- 
ing public, a large part of which was willing to do without the 
extra services if it could obtain the saving in price. This policy 
has been generally adopted by chain store organizations and the 
name chain store at this time is almost synonymous with ^^cash- 
and-carry.'' 

Richard M. Decker, treasurer of Chas. M. Decker & Brothers 
of Orange, N. J., explains as follows the reasons which led them 
to change radically the type of their organizations: 

''The company of Chas. M. Decker & Bros, has operated so-called 
service grocery stores since 1871. However, due to changing conditions, 
the demand for this class of store was decreasing, rather than increasing, 
in this territory. Therefore, in the early part of 1918 we decided to 
enter the chain store business for ourselves. Since that time, we have 
closed all but three of our service stores and have opened, either our- 
selves or through the purchase of another company, approximately onp 
hundred and sixty odd thrift stores. 

''In 1920 we organized a new company to take over the operating 
thrift stores of Chas. M. Decker & Bros, and to open additional ones as 
times and conditions should warrant. Two companies are now being 



♦I 



w 



THE CHAIN STORE FIELD 23 

operated but with one centralized purchasing and administrative 
organization. We have different schedules of prices in the two chains 
of stores ; and it is needless to say that there is a difference in our account- 
ing systems. 

'^At present we consider the thrift stores the most satisfactory, but 
we also feel that there is enough demand in certain localities for a service 
grocery store; and whether the service grocery store should be con- 
tinued depends of course upon whether there is sufficient demand. We 
would also add that in our service stores we carry a much greater 
assortment of merchandise than in our thrift stores.'' 



Here, in a nut shell, is an answer to arguments against the 
chain cash-and-carry stores. The public prefers them to the 
service stores. The people who can afford to pay for extra 
services are comparatively few, compared to those who prefer 
to carry their purchases home and save the money. 

There has been one further development in cutting down 
expenses and this is the self-service store, as evidenced by the 
phenomenal growth of the Piggly Wiggly stores. Since 1916, 
the Piggly Wiggly Co. has opened 600 stores. There is saving 
on clerk hire as well as the customary savings on delivery and 
credits. The plan is very simple. There are turnstile gates 
through which the customer enters. Goods are all placed on 
open shelves with prices plainly marked. The customer opens 
the refrigerator and takes out whatever he or she wishes. It is 
impossible to leave the store without passing through all the 
aisles. When the customer reaches the out-turning wicket a 
clerk records the amount of the purchase and the customer pays 
this to the cashier. 

Making all allowance for the novelty of the idea, these stores 
seem to have been notably successful. They appear to fill a cer- 
tain need in retail merchandising. The plans of the company call 
for the establishment of one Piggly Wiggly store for each 10,000 
population in cities of the United States. If 60,000,000 people 

! are figured as living in cities, it will be necessary to operate 6,000 

' Piggly Wiggly Stores. 

I The Dry Goods Economist quotes the following remarks 

j about the profits and economies made by the Piggly Wiggly Co. 

I from the use of the self-service idea : 



24 CHAIN STORES 

^^The first Piggly Wiggly store in Memphis, Tenn., was opened in a 
building formerly occupied by one of a chain of twenty stores* For the 
six months immediately preceding the taking over of the building by the 
Piggly Wiggly concern, the sales of the former chain store had approxi- 
mated $34,000 with an approximate expense of $5,200. The Piggly 
Wiggly organization retained the clerks formerly used in the other 
store and had the same management, but put into effect its self-service 
system and its own equipment. In the first six months of the Piggly 
Wiggly occupancy, $114,000 business was done at an expense of $3,400. 
The self-service system cut $300 per month from expenses, and showed 
a gain of $80,000 in sales. Under the old system the overhead had been 
15 per cent; the Piggly Wiggly overhead was three per cent. For two 
months, June and July 1920, this store did an average of $6,000 per 
week, while it carries $8,000 worth of merchandise at all times, giving 
it a thirty-nine-time turnover yearly/' 

The above account is obviously written from the Piggly Wiggly] 
angle. Now listen to what a chain store which tried out the] 
self service method has to say: 

^'We tried out the Piggly Wiggly idea of a self-service store, and it 
worked. In fact, it is one of our best stores. However, we find this is i 
true: there is no tremendous saving in the payroll, as might be expected. 
We like this one store in its location, down town, and feel that it takes' 
care of the afternoon rush more efficiently than the old style of store 
ever could. But for a residence neighborhood, we feel the self-service 
store would never work. Women like to have things explained to 
them. The personal factor is too valuable to warrant having a lot of 
mechanical stores without real human beings behind the counter. '' 

This sounds strangely like the arguments that were put forth 
against the chain stores themselves in the early days, when it 
was freely predicted they could never be a success because of 
the lack of this very personal element which is brought up here 
against the self-service store. Actually, it is too early to speak 
with certainty as to the future of this development. It would 
seem that there should be a place for such a store in nearly every 
community, and the success of the Piggly Wiggly Company itself 
would seem to bear out this assumption. 

Whether the self-service idea can be adapted to forms of 
merchandise other than groceries has not yet been attempted. 



I 



THE CHAIN STORE FIELD 25 

If the self-service plan is to be restricted to the grocery field, its 
importance will be restricted, but if it can be extended to other 
fields, there is no limit to its possibilities. 

Type of Chain Organization. — There is no standard type of 
chain organization. It varies all the way from the most closely 
connected organization possible under the circumstances to a 
very broad authority vested in the local manager. The grocery 
chains^ the drug chains and other chains dealing in staple commo- 
dities are ordinarily very closely knit together. In other cases, 
each store is dependent on the head organization only for certain 
things, in others being a unit in itself, such as the hotel chains. 
Between these two extremes there is a wide gradation. 

A different type of organization is usually required for chains 
that have several stores in each community than for that in 
which the links are widely scattered. It takes a larger percent- 
age of population to support a chain candy store than it does 
to support a chain drug or grocery store. The proximity of the 
1 various links in a grocery chain makes it easier to superintend 
their operation and makes it unnecessary to invest the branch 
manager with any great amount of authority. 

The Penney system is explained at length later in the book. 
This partnership type of organization seems to fit the dry 
goods field particularly well, although there seems to be no 
inherent reason why it should not be applied to other fields with 
equal success. 

The manufacturer's chain brings in so many new problems not 
existing in the average retailer's chain that the subject has been 
treated separately in Chap. XXI. 

The agency plan as instituted by the United Drug Company 
seems outside the ordinary chain store field since the agencies 
are not under one central executive control as are all other types 
iof chains, including the manufacturer's chain. 

The Type of Product. — In the last analysis, the greatest point 
of differentiation between chains is the type of product they sell. 
As previously mentioned, the chain idea has spread from the 
grocery and the five and ten cent stores, until now it enters 
into many retailing lines. Following is a classification of some 
businesses successfully operating under chain store principles and 
practices. 



26 



CHAIN STORES 


t 


Bakeries 


Hardware 


Barbers 


Hats 


Butchers 


Hosiery 


Cloaks and suits 


Hotels 


Clothes 


Men's clothing 


Candy and confectionery 


Optical 


Dairy products 


Pianos 


Drugs 


Restaurants 


Dry goods 


Shirts 


Dyers and cleansers 


Shoes 


Five and ten cent stores 


Tailors 


Florists 


Theaters 


Fruit 


Tobacco 


Garages 


Typewriters 


Groceries 


Waists 


Haberdashery 





II 



It is not too much to say that all operating policies and methods 
depend on the nature of the product or service to be marketed, 
not only the method of accounting, the type of clerk, and the 
degree of supervision necessary but also the location and the 
methods of publicity. The nature of the product will also deter- 
mine the type of customer to whom the chain must appeal. 

Chain Store Trends. — It is difficult to tell what the ultimate out- 
come of the chain store movement will be. It seems definitely 
established that it is to be one of the most important elements in 
retailing and, as pointed out before, it is growing because its 
principles are in harmony with the spirit of the times. 

There are two major tendencies which deserve particular 
mention. The first of these is the tendency to combination which 
is observable, and the second is the increasing policy of the 
chain organizations to manufacture as much as they can of what 
they sell. 

1. Combination. — It seems to be a principle of chain store 
growth that a chain will attain a certain size by carefully plodding 
ahead on the most conservative lines and then suddenly merge 
with another chain of the same size, or one slightly smaller. 

There have been three great chain mergers. In 1912, the 
F. W. Woolworth Co. was formed to take over and operate six 
five and ten cent store chains, viz: I 



THE CHAIN STORE FIELD 27 

Stores 

F. W. Woolworth & Co 318 

S. H. Knox & Co 112 

F. M. ffirby & Co 96 

E. P. Charlton & Co 53 

C. S. Woolworth 15 

W. H. Moore 2 

Total 596 

At one stroke the F. W. Woolworth Co. became a national 
chain, for the various components had each developed a separate 
section of the country. The motives for the merger were plain. 
It gave at once a stronger financial organization, much greater 
buying power, and a consequent wider range of articles which 
could be sold at five and ten cents, and lastly it increased operat- 
ing efficiency. Since the merger, the number of stores in the 

j Woolworth organization is nearly double the 596 stores operated 

; at that time. The sales, however, have almost trebled, going 
from $52,616,123 in 1911 to $147,644,999 in 1921, a space of just 

: ten years. 

' The second great merger was in the grocery field in Philadel- 
phia when the following five chains combined to form the 
American Stores Co. The merger took place in 1917. 

Founded Stores 

The Acme Tea Co 1887 433 

Robinson-Crawford 1891 186 

The Bell Co 1890 214 

Child's 1883 268 

j Dunlap & Co 1888 122 



1,223 



This total of 1,223 stores made the American Stores Co., 
the second largest grocery chain in the country, and the only 
chain operating more than 1,000 stores which was not national in 
scope. The results are substantially the same as in the case of 
the Woolworth combination. 

The mergers of small chains which take place constantly are 
rarely discussed. They are not large enough to cause much stir in 
the commercial world. But this process, which goes on unceas- 



28 CHAIN STORES 

ingly, and has been more rapid of late years has enormously 
increased the number of chain stores. No sooner do two or more 
chains combine than a new chain arises to compete with them. 
No chain has yet succeeded in having a monopoly because the 
same fields in which it operates are open to its competitors. 

The third and most significant combination of the three 
took place in 1919, when the United Retail Stores Corporation 
was formed by the Duke-Whelan interests. It was not a com- 
bination of several companies dealing in the same product, but a 
combination of companies retailing different products. The 
statement to the stockholders concerning the attitude of the 
management said: \ 

''For several years the outstanding feature of business development 
in the United States has been the growth of chain store merchandising. 
It has been steady and permanent and promises to have greater expan- 
sion during the next ten years. The United Cigar Stores Co. was 
among the pioneers in the development of the chain store idea and during 
the growth of the company a splendid organization, efficient in methods 
of systematic checking and progressive store management was built up. 

''As all chain store development rests primarily on securing suitable 
locations, it was realized by the management that the large real estate 
department pretty well covering the country could, without much 
additional expense, secure stores for other lines of business besides cigars. 
Also, as fundamentals of chain store operation apply to most lines of 
merchandise, the experience of the successful heads of various depart- 
ments of the company could be applied to any field of chain store 
management considered desirable. 

"In short, the management felt that by securing additional capital, 
and being placed in a position to finance new enterprises, expansion 
most profitable to the stockholders would be assured. '^ 

The new company started out with three chains. The United 
Cigar Stores Co. was taken in first. Gilmer^s, Inc., a dry goods 
chain operating chiefly in the South was acquired. And lastly the 
United Retail Candy Stores Co. was formed which already has over 
twenty-five stores in operation. In addition to these thfee | 
chains, Montgomery Ward & Co., the second largest mail order 
house in the country, was acquired. In this way the corporation 
felt that the retail outlet problem was solved. It is planned to 



THE CHAIN STORE FIELD 29 

have each of the subsidiary companies manufacture a great deal 
of what it sells. The United Cigar Stores Co. already was 
ensured a supply of its own branded goods and the Furst & 
Kramer Co. was bought to supply its own brand of candy to the 
United Retail Candy Stores. A retail drug chain, the United 
Retail Chemists Corporation, operates eighteen stores mostly in 
New Jersey. 

Each line of business will be run as a separate entity. The 
-parent corporation will furnish capital and funds. About half 
-the stock in each company will be sold to the members of that 
^company and the public. In addition to the cigar stores, the 
candy stores, the drug stores and the department stores, the 
corporation may start grocery stores or any other type of retail 
istore for which it sees a need. The United Retail Stores 
Corporation plans to furnish the accounting system, locate sites 
for retail stores, and furnish men. 

The corporation has no intention of confining its operations 
^to the United States for its charter reads: ^^To extend and carry 
ion generally in the United States and throughout the world a 
[manufacturing business and a system of retail stores for merchan- 
^dising of all kinds. ^^ In the full course of expansion the corpora- 
jtion w^as hit by the post-war deflationary movement and plans 
were, if not suspended, at least modified, to meet the new con- 
ditions. 

I 2. Manufacturing by Chains. — When the chain stores first 
^came into conflict with manufacturers on the questions of buying 
direct and maintaining manufacturers' prices, the result was 
ithat in many cases the chains started factories of their own to 
manufacture a certain portion of their products which they found 
it difficult to obtain outside. These manufactured products 
(they labeled with a brand of their own invention and placed 
|them in competition with the advertised articles. 

On the part of the grocers, the business of manufacturing their 
own brands was taken directly from the practice of the jobbers 
jand wholesale grocers, 75 per cent, of whom had for a long time 
>een manufacturing. The war, shutting off as it did a great 
eal of importation from Europe, was a great stimulus to chain 
jmanufacturing. The Woolworth Co., particularly, took this 
opportunity to start manufacturing many articles. 



30 CHAIN STORES 

The United Drug Co., an association of manufacturers, has 
provided for the sale of its products not only through its own 
chain of stores, the Louis K. Liggett Co., but through an extensive 
chain of agencies. The United Cigar Stores Co., which manu- 
factures many of its own brands, pursues this same policy of 
extending sales through agencies into districts which are hardly 
large enough to support one of the company's own stores. The 
Winchester Stores Co. has attempted this same scheme of obtain- 
ing distribution for manufactured products and this method is 
used by the majority of the manufacturers' chains. The goods 
manufactured by the chain are sold at lower prices: 

1. It gives the chain an unfailing source of supply of goods to sell, in 
uniform quantities, and of uniform quality, 

2. It tends to keep the price of advertised articles down. 

But independent manufacturers need have no fear that the 
manufacturing policy of the chain will do away with all demand 
for their products, provided they are merchandised properly. 
The customer of the chain store can be sure of getting what he 
asks for. 

Conclusions. — The chain store movement is still in the growing 
stage. Differentiation is bound to occur. That is, the science 
of retailing has only in the past few years passed the experimental 
stage. Standardization is brought about by increased competi- 
tion and the resulting elimination of the unfit. Thus, in the 
future, chain store practice will become even more standardized 
than it is today, granting, of course, individual and minor differ- 
ences in policy or the guiding influence of a great executive. 

It is difficult to forecast the future further than to say that it 
is full of opportunity and promise. The experiment of the 
United Retail Stores Corporation brings in a new and highly 
interesting development. This company maintains that it is 
possible to standardize chain store practice sufficiently to run 
several retail ventures of different kinds under the same executive 
control, and furthermore, that the business of manufacturing ^is 
necessary for the greatest success of the chain. 



CHAPTER III 
LOCATING THE STORE 

Outline 

The general location as determined by 
1. The product to be sold, 
(a) Necessities. 

1. Must be located on traffic. 
(6) Shopping lines. * 

1. May locate off traffic provided 
(a) Advertising is done. 
, 2. The policy of the company. 
I (a) To locate in centers of population. 

, (h) To locate in small towns. 

3. The distance from source of supply. 
I (a) From factory. 

I (6) From warehouse. 

1 The specific town or city. 

1. Movement of population. ^ 

(a) Anchored as far as business district is concerned. 
' (h) City moving up hill. 

(c) Moving away from rivers. 
i 2. Number of the population. 
I (a) Rate of growth. 

3. Character of population. 
j (a) Determined by 

j 1. Industries in city. 

4. Amount of suburban trade, 
r The prospective site. 

1. Distance from shopping center. 

(a) From railroads. 

(h) From junction points. 

{c) From competitive stores. 

2. The side of the street. 

(a) Shady side more suited for women's shops. 
1. Rent higher. 
Analyzing the traffic. 
1. According to volume. 

(a) By hours of the day. 
(6) By days of the week. 

31 



32 CHAIN STORES 



2. 


By sex. 




(a) Male. 




(b) Female. 


3. 


Traffic entering neighboring stores. 


4. 


Amount of traffic carrying bundles. 


5. 


Type of traffic. 




(a) Shoppers. 




(6) Commuters. 




(c) Miscellaneous. 


The building. 


1. 


Construction. 




(a) Number of stores. 




(6) Material. 




(c) Condition. 




{d) Heating. 




(e) Water supply. • 




(/) Miscellaneous. 


2. 


Present occupants. 




(a) Character. 




{h) Length of leases. 




(c) Degree of success obtained in location 


3. 


The store. 




(a) Floor space. 




1. Necessity of new partitioning. 




(6) Fixtures. 




(c) Display windows. 




1. Arrangement. 




{d) Entrance. 




1. Up steps or level. 




(e) Lighting. 



Renting or owning. 
L Dependent on 

(a) Size of chain, 
(&) Capital, 
(c) Rate of expansion. 
{d) PoHcy. 

2. Possibilities of profit from owning and renting remainder of building 

to tenants. 

3. Advisability of special realty department to 

(a) Collect rents. 

{h) See to improvements. 

(c) Make rentals and new leases. 

{d) Miscellaneous. 



CHAPTER III 
LOCATING THE STORE 

No matter whether a merchant is locating his second or his 
two hundredth store, the location of it is of first importance. 
Probably more has been written about locating the chain store 
than any other phase of the subject. The reason is simple. 
There is no other aspect of the business which is calculated 
so much to catch the public interest, always alive to novel 
merchandising methods. There is something out of the ordinary 
in the idea of a man or several men standing on a street corner 
and clocking the passers-by. Yet this was the method initiated 
by the United Cigar Stores and widely imitated over the whole 
country. 

Many chain store systems maintain real estate departments 
which are organized to a high degree. A department of this 
sort not only picks the sites, but it takes care of the buildings, 
makes improvements, renews leases, in a word, takes entire 
charge of the company's property. A separate real estate de- 
partment, of course, is possible only for chains possessing a large 
number of stores and facilities for increasing this number at a 
comparatively steady rate. 

But location is not always a matter of finding out where 
the largest number of people pass during the day. Some large 
chains rely little on this factor to secure patronage. An example 
of such a chain is the J. C. Penney. Penney wants low rents. It 
seldom rents a store in what is supposed to be the best locality, 
although much depends on the town and the character of possible 
customers. It tries to locate in a fairly central position in the 
town but rarely on the main street. It will go to the very 
edge of the business district if the downtown side streets are too 
expensive. This policy is justified for this company which finds 
that people will come without much regard to location. This 
rule must be modified occasionally. As one of their officials says, 
a farmer will walk a block to save a few cents, but a miner will 
3 33 



34 CHAIN STORES 

not. Therefore, in mining districts the Penney poHcy has to be 
made to suit conditions. 

General Principles of Location. — In the old days a merchant 
bought or rented a store where he could get it. He hung out his 
sign and waited for customers. If such a policy were tried today, 
he would still be waiting. If the modern merchant is not pre- 
pared to make his presence known by advertising or by cut 
prices or special sales, he must put his store where the largest 
number of potential customers will see it. 

The first thing to do when locating a store is to analyze the 
business and see exactly to whom the goods are to be retailed 
and how trade is to be attracted. One of the experts in locating 
sites divides merchants into two classes: 

1. Those Who Advertise. — Such merchants can afford to take 
a chance on location. He gives such notable examples as Lane 
Bryant in New York, maternity garment merchandizers, who 
cater to a Fifth Avenue public, although located half a block 
away from Fifth Avenue on 38th Street. Another example is 
Spear & Co., furniture retailers. New York, who have made a 
big success although located on what is technically the wrong side 
of the street. A furniture store, to be sure, has a somewhat 
different problem from the ordinary retailer, and can sometimes 
afford to locate out of the main traffic. 

2. Non-advertisers. — This second type of merchants must 
select locations which naturally obtrude on the public vision. 
The circulation of traffic may be compared to a river which has 
overflowed its banks. The main current flows steadily on while 
in the backwaters there is little motion or perhaps an eddy. The 
merchant who succeeds in locating on the main artery of com- 
merce and whose merchandizing plan is otherwise suitable must 

^ be successful, while the merchant around the corner finds little 
traffic coming to his door. 

Cigar and drug stores endeavor to locate near some point 
where traffic is heavy. In fact, a cigar store finds it difficult to 
make a success unless it is on a corner. The United Cigar 
Stores have gone so far as to make it a rule that their stores shall 
all be on corners. A drug store can take an inside location 
provided that the traffic does not have to go out of its way more 
than a short distance. 



LOCATING THE STORE 35 

The first principle of locating a chain store is this : If the traffic 
cannot be made to come to the store by special inducement, 
such as advertising, or price, then the store must be located 
in the path of traffic. 

The Locality. — Almost every chain has a definite objective 
when going into a community. It knows exactly where its 
store ought to be. Rarely is it possible to obtain this location at 
once. Often it is a case of waiting years. One chain has a lease 
on property in San Antonio which will not go into effect for seven 
years. Another lease made in Norfolk starts in five years. 
The real estate department is looking well into the future. 

The future of the community must be considered a funda- 
mental factor in determining location. Some cities are con- 
stantly moving, others are safely anchored. Wherever the 
high-class residence district is^ the high-class business district 
will follow. Business has gone out Euclid Avenue, in Cleveland, 
Woodward Avenue in Detroit, and East Avenue in Rochester, 
N. Y. 

But where there are physical obstacles to this, such as in the 
case of a steep hill in Providence, Rhode Island, or rivers, as in 
Pittsburgh, the business section cannot move except in certain 
directions. As a general rule populations grow up hill. If 
office buildings predominate in a locality, stores selling goods 
with a shopping appeal will be found elsewhere. 

Charles Nicholls, Jr., president of the Chain Stores Leasing Co., 
gives an interesting resume of the method by which he establishes 
the value of a piece of property: 

1. Ascertain the population. 

2. Determine the type and habits of the people. 

3. Investigate main industries to see whether location is good for men or 
women. Youngstown, Altoona, and Akron are good for men. Fall River, 
Lowell, and New Bedford are good for women, because of the large number 
of women employed in the factories there. 

4. Investigate bank deposits and clearings. These give an excellent 
history of business conditions. However, it is necessary to ascertain how 
these are divided among the population. It might be in a medium-sized 
town that the majority of the clearings were due to a small number of 
individuals. 

5. Find out the number of different industries. Find out also the pro- 
portion of workmen to clerks. Washington, D. C, for example, has a 



36 CHAIN STORES 

large clerical population, while Schenectady has a large number of skilled 
and unskilled workmen. 

6. After having considered the above points, the proper method is to 
study the prevailing local rental conditions. The available business blocks 
are investigated with relation to the traffic. Men's locations are differ- 
entiated from women's. When the block has been chosen, secure definite 
and reliable information on each piece of property and the possibility of 
securing it. The value depends mainly on the volume of actual business. 
One location might be worth $3,000 to one man, $4,000 to another. In 
addition, it is necessary to take into consideration the drawing power of 
the surrounding territory. 

The above outline of method sets forth the general course of 
procedure. It brings out clearly the salient points to be 
investigated. 

Analyzing the Traffic. — The value of analyzing the traffic 
passing by a potential chain store site lies in the fact that statistics 
have been worked out carefully by the different chains on which 
they can form judgments. They can compare conditions exist- 
ing in the old stores. They know the percentage of people 
passing a given point who will enter a store such as theirs. For 
example, the United Cigar Stores Company has a fairly definite 
idea, after it has analyzed the traffic, not only how many men will 
enter its store, but also how many will buy, and the average sale 
to each one. Knowing this, it is comparatively easy to figure 
out what an individual store will earn, or better the volume of 
sales each individual store will make. In each case allowance is 
made for the type of the locality, the traffic, etc. 

The most spectacular feature of choosing the chain store is 
undoubtedly the clocking, that is, determining how many people 
pass a given point, to what type they belong, whether they carry 
bundles, their sex, age, or any other information which may be 
desired. Anywhere from one to four men is required to gather 
this information. It is not only gathered for one day but for 
several days and even weeks. Some chains will not establish 
stores unless it is found that at least 15,000 people a day pass 
the point where it is proposed to establish the store. ^ 

Figure 2 shows the questionnaire which the investigator for 
a bakery chain had to fill in. It is to be supposed that some 
definite site was already in view when the investigator was sent 
out to cover some location. Here the hourly traffic was gauged, 



ii 



LOCATING THE STORE 37 



How near is shopping centre 

State nearest bakery 

Distance of store from United Cigar Store 

Distance of store from Liggett's Drug Store 

Distance of store from Schulte Cigar Store 

Will owner agree to run necessary two-inch gas pipe from oven 

Details of Traffic How Many People Total 

Hours Males Females Carried Packages Number 



7 A.M. to 


8 A.M..- 


8 A.M. to 


Q AM 


9 A.M. to 10 A.M • 


10 A.M. to 11 A.M 


11 A.M. to 12 Noon 


12 Noon to 


1 P.M 


1 P.M. to 


2 P.M 


2 P.M. to 


3 P.M 


3 P.M. to 


4 P.M , 


4 P.M. to 


5 P.M 


5 P.M. to 


6 P.M 


6 P.M. to 


7 P.M . . 


7 P.M. to 


8 P.M 


8 P.M. to 


P.M 


9 P.M. to 10 P.M 


10 P.M. to 11 P.M 


11 P.M. to 12 Midnight 


Grand totals 


Remarks 















Investigator's Signature 
Approved 
Approved 



Fig. 2. — Questionnaire used by bakery chain to determine attractive store sites. 



38 CHAIN STORES 

divided by sexes. It was also important to ascertain how many 
people carried bundles. 

Some such plan as this should be followed in nearly all cases 
where new stores are to be opened. It is especially important to 
know in advance the size of this volume of traffic where the 
store does not rely on other means of attracting trade. Depart- 
ment stores, women^s ready-to-wear stores, specialty shops, and 
some shoe stores, can afford to take a chance of making up traffic; I 
deficiencies by their own efforts, but this means money expended 
and it is always a debatable question whether increased rents 
and more traffic are not better than lower rents and increased 
advertising with decreased profits. A mistake in location may I 
prove costly because often stores are taken on long term leases. 
The United Retail Stores Corporation finds it profitable in some 
cases to take a location, formerly devoted exclusively to retailing 
tobacco products, and make it a candy store, devoted exclusively 
to the retailing of confectionery. 

The investigators for many chains have to go much further in 
analyzing the traffic than is indicated in this bakery question- 
naire. They take into consideration the direction of the traffic 
both in general and at special times of the day. There are very 
definite currents of traffic which it is possible to set down 
statistically. In some cases the number of people entering other 
stores in the same line of business is noted as well as the 
number of persons leaving that store with bundles. In suburban 
districts it is frequently found valuable to analyze the number 
of persons returning home from the city with packages, indicating 
that purchasing is done elsewhere. In many cases this may prove 
an inducement to the chain store to enter that locality, accepting 
this foreign purchasing as an index that prices in the district 
are too high. 

Grocery stores ordinarily go in for cheaper locations. In the 
majority of cases they are a strictly neighborhood proposition, the 
prevalent cash-and-carry feature making this almost universal. 
In some cases, however, stores in the heart of the business dis- 
trict have been found exceedingly profitable, particularly when 
run in connection with some lunch room or restaurant feature. 

Location and Buying Habits. — It is quite possible that 15,000 
people might pass a given location daily, yet that location prove 



II 



LOCATING THE STORE 39 

useless, simply because the people and the product were not 
suited. People going from the railroad station to the business 
district to work will often stop and purchase tobacco and candy, 
but they rarely would have time to shop in a department 
store. 

Mr. Nicholls says: '^I analyze the travelling population care- 
fully. I notice where people get on and off the cars. I classify 
the general types. I can tell the ^drop in^ type, which is quite 
different from the type which comes prepared to purchase. 
There is also the station traffic, the commuters. These are 
always in a hurry. '^ 

Every location will have a certain type of purchaser, and this 
type of purchaser varies at different times of the day. Now from 
this it is possible to draw rather definite conclusions. It is 
evident that some locations are particularly fitted to some types of 
stores. For example, the five and ten cent store does 90 per cent. 
I of its business with women. Its usual policy is to locate as 
near as possible to a department store, thus getting the benefit 
, of the department store's great drawing power. If a department 
j store is not available, some other magnet which draws people such 
( as a theatre or a drug store will do although the latter are not 
considered nearly so effective. Since a five and ten cent store in 
itself is not important enough to draw people to it, it must rely on 
putting itself in the way of its potential patrons. It will not be a 
success in the office district where the great majority of pedes- 
trians are men. 

It has long been known that sides of the street differ from 
each other in the amount and nature of business done. Ordi- 
I narily the shady side of the street is given over to women's trade 
' and rentals are 25 per cent, higher. Department stores are an 
, example of this. There are exceptions in Boston on Tremont St. 
( where the Common makes it impossible to seek the shady side, 
' and in Rochester, N. Y., where the sunny side was originally 
I chosen and no change has since been made. 

In similar fashion, one side of the street may be good for 
j candy stores and fatal to shoe stores. Going even further, one 
I side of the street may be good for expensive shoes and bad for 
j cheap shoes, and vice versa. A cigar store which was a failure 
\ on one side of the street might be successful on the other side; 



40 CHAIN STORES 

and this can be predetermined to a great extent by analyzing 
the traffic. 

Going back for a moment to the population of the city, we 
find it is possible in many cases to determine the per capita 
consumption in a given city or district of a given product. By 
gathering statistics such as these, George J. Whelan, founder of 
the United Cigar Stores, was able to establish his locations in 
more scientific fashion than would otherwise have been possible. 
For example, he made up the following list of the per capita 
consumption of tobacco in the largest cities: 

San Francisco $4.06 Rochester, N. Y $0.99 

Atlantic City 2.55 Chicago 0.63 

New York 1.74 Spokane 0.60 

St. Louis 1.21 Milwaukee 0.22 

Such figures are readily ascertainable by the ordinary methods 
of commercial research. By a glance at the above table it is 
evident that a great many more people would have to pass a 
United Cigar Stores location in Milwaukee than in San Francisco 
before the same volume of sales could be obtained. 

Such a list as the above is of only temporary value and must 
not be relied on too far. Buying and consuming habits are 
constantly changing. New styles, new people, new industries, 
all have a bearing. Therefore, such figures must be constantly 
kept up to date. An increase in per capita consumption would 
mean more stores, a decrease a policy of curtailment or of 
artificial stimulation of consumption. 

City and Suburban Locations. — In the earlier stages of thei 
chain store development, many stores were located hit-or-miss. I 
Some of them succeeded and some of them failed. But those 
that failed went out of business for good and sufficient reasons. 
There was nothing intangible about their failure. Many of 
them succeeded because they could not help doing so. The 
business was forced upon them. But, in general, the larger 
chains have always followed a standard policy in choosing 
locations, and the smaller chains can only hope to compete by 
doing the same. Locations are always becoming available [ 
through growth in population but, generally speaking, locations * 
are becoming scarcer and competition keener. | 

Chains normally start in large cities, spread in that city and * 



n 



i 



LOCATING THE STORE 41 

then jump to another large city. This was the manner in which 
the Great Atlantic & Pacific Tea Co. started as well as the 
United Cigar Stores. Later they return and comb up the smaller 
communities. Woolworth started in a small town and then 
spread to larger communities. Penney follows a policy of 
clinging preferably to the smaller communities, and in this way 
effects many economies, at the same time having a monopoly 
of the chain department store field in these localities. 

In cities, the most likely locations are taken first. Expansion 
then extends to the suburbs, and finally to the smaller towns 
nearby which fall within the warehouse radius. In obtaining 
data on suburban locations, a favorite method is to watch the 
delivery route of some independent competitor and, if it is 
judged that the volume of trade is heavy enough, a store is 
opened. Some grocery chains have had surprising successes in 
quality suburban locations, seemingly well filled with flourishing 
businesses. 

Individual Policies. — It is an interesting psychological fact 
that customers dislike walking upstairs to make a purchase. 
Women will always go down to the basement rather than up to 
the second floor of a department store. The United Cigar 
Stores Co. has capitalized tMs trait. It avoids raising the level 
of the store either a step above or below the street, making 
it exactly even. In fact this is now becoming standard practice 
lamong many retailers. 

Furthermore, the store entrance is set at an angle so that traffic 
on either street can readily see into the store. In this way, the 
corner location is made to yield full value. In addition, it 
jprevents congestion as well as giving a pleasing impression. 
The United people never hesitate to open one store across from 
jone of their own shops already operating if traffic conditions 
iseem to warrant. Wherever this policy has been followed, it 
|has been found that there was no falling off of business in the 
lold store. 

^ As a matter of fact, chain stores show a tendency to cling 
jtogether in localities. Chain grocery stores often occupy the 
(same block, and frequently are located next to each other. 
I Location Experts. — There has been much controversy as to 
how efficient the chain store leasing experts actually are. It has 



42 CHAIN STORES 

been claimed that only a local real estate man is able to apprais< 
the value of a piece of property at its true worth. There is 
doubt that the chain store realty man is over-charged becaus* 
it is well known the chains are able to pay. It is even possible 
that a chain store is willing to pay more for a certain location 
than the previous independent occupant. But it is usually for 
good and sufficient reasons. When a chain store expert has 
analyzed a location, he knows whether that location is going 
to prove satisfactory and the company is willing to risk its money 
on the accuracy of his judgment. 

One chain store company had seventeen stores in operation. 
Before opening the eighteenth, it called in an expert. He 
picked out a location and submitted an estimate of the first years' 
sales which, in actual practice, turned out to be only $8,000 less 
The United Cigar Stores scouts have done even better than this. 
So highly developed are their methods that they have often 
given estimates of the first six months' business which came 
within $200 of actual sales. 

When it is possible to obtain such accuracy as this, there 
seems little possibility of failure. But chain store location 
experts must be highly paid. Their ability to forecast is not ob- 
tained immediately, but is the fruit of long and tedious observa- 
tion. They are assisted by a large number of records, some 
companies having statistics in their files on almost every city of 
size in the United States. 

One of the largest five and ten cent stores believes that intuition 
and ^^ horse sense'' have much to do with opening new stores, 
coupled with the usual standard investigations. It rarely 
happens, according to them, that an overestimate is made. 
Occasionally, in opening up a new location, the ''percentage 
lease" is resorted to, the lessee paying as rent a certain per- 
centage of his gross sales. 

The Real Estate Department. — Many of the larger chain 
store .systems, as has been said, maintain a highly organized 
real estate department to take care of property and buildings, 
make improvements, close leases, improve property, etc. But 
it is only the larger chains that, can afford to install a special 
organization for this purpose. In the smaller chain, one or 
two individuals may have charge of the real estate, while J 



LOCATING THE STORE 43 



Date 

City Population . 

Number of Railroads Names. . . . 



Number of Street Car Lines Names. 

Description of Property 

Location 

Condition of Store 



Dimensions 

Term of Lease 

Rental 

Allowance by Owner 

Owner's Name 

Agent 

Date when possession can be had 

Time necessary to make repairs and alterations. 
Give list of adjacent stores in block both sides. . 



How long has present store been vacant?. 
Inquire of three adjacent store owners. . . . 



How many vacancies in block both sides? No 

How many tenants in present store in last five years?. 

Give reason for change of tenants 

Do you approve of store for Bakery? 

Give your reasons 



How many bakeries in town?. 
What brands of bread sold?. . 
How near are markets? 



Fig. 3. — Report on possible property for use by chain bakery. 



44 CHAIN STORES 

in the very small chains it forms only a portion of one person's 
duties. 

The location expert locates the store. He may have done 
all that was in his power to ensure the prosperity of this link in 
the chain by the exercise of his experience and judgment; but 
the real estate department must carry on his work. Many 
events occur which may have more or less important bearing on 
the future of the chain. If the business falls off it is not alone 
the function of the sales department to ascertain why, but it 
also comes within the province of the realty department. Popu- 
lations are not stationary. They move. Residential areas 
gradually become business sections. A large factory will change 
the character of a neighborhood in a few years. A foreign speak- 
ing population may come in whose habits of living are utterly 
unlike those of the previous population. 

If the realty department finds some such event as this taking 
place, and the store manager is usually well acquainted with 
neighborhood events, it may be highly inadvisable to renew a 
lease for a long period at the same rent. 

But neighborhoods do not always deteriorate. In many cases, 
locations in the outskirts, which apparently now are worth little, 
and which handle but a fraction of the trade turned over by the 
down town establishments, may, in the course of ten years, be the 
centers of large and thriving populations. 

Figure 3 shows how carefully the same bakery chain mentioned 
before reports on real estate locations, in addition to clocking 
and analyzing the traffic. The population of the city, the 
number of railroads and street car lines, the condition of the 
property, the rental, time of possession, adjacent vacancies, 
everything that can throw light on the real value of the location, 
is put down. The number of times tenants have changed in the 
last five years, and the reasons for their changes, are found out. 

No detail which will augment the success for the chain is too 
small to consider. In real estate dealings, as elsewhere, it is the 
spirit of efficiency, of standardized operations, which must make 
itself felt. Some idea of the detail involved in the problem of 
locating a store is indicated by the questionnaire form in the 
following five pages: 



J 



LOCATING THE STORE 45 

REAL ESTATE REPORT 



City 


. State 




Retail Zone Boundaries, by street. . 








Traffic Points 


Principal Retail Streets 






1 from to 


. side . 


front ft. rate 


Class of establishments 






General Character Foot Traffic . . 






2 from to 


. side . 


front ft. rate 


Class of establishments 






General Character Foot Traffic 


3 from to 


.side. 


front ft. rate 


Class of establishments 






General Character Foot Traffic 


In Our Judgment Best Location for a Retail Store for Women's 


Articles Would Be: 






1 from to 


. side . 


front ft. rate 


2 from to 


. side . 


front ft. rate 


In Our Judgment Best Location 


FOR A 


Retail Store for Men's 


Articles Would Be: 






1 from to 


. side . 


front ft. rate 


2 from to 


. side . 


front ft. rate 


In Our Judgment Best Location 


FOR A 


Retail Store for a Gen- 


ERAL Line Would Be : 






1 from to 


. side . 


front ft. rate 


2 from to 


. side . 


........ front ft. rate 


Best local broker or correspondent . 






Remarks ." 













46 CHAIN STORES 



Men's line 
Suitable for : ] Women's line 

Building No General line 

Available 

between and side 

story Erected 

Constructed of 

Condition 

Other tenants 



Neighbors : Right 

Left 

Opposite 

Others 

Sidewalks, kind Width 

Street, kind Width Lighting . . . 

Water Supply Toilets 

Heating .' 

Fire Protection 

Store self-contained or sub-divided? 

Partition walls 

Insurance rate on tTuilding Fixtures . 

Insurance rate on merchandise 

Restrictions, if any 

Building owned by 

Remarks 



LOCATING THE STORE 47 



Suitable for: 
Store 



Men's line 
Women's line 
General line 



Feet front feet deep. Ceilings feet 

Feet wide in rear 

Display Windows: Style 

How many ? 

Size Lighting 

Remarks 

Fixtures, if any 



Shelving 

How is store entrance?. . . .-. 

Level or steps from sidewalk 

Rear or shipping entrance 

Windows 

Lighting 

Heating 

Condition of floor Load . 

Condition of side walls 

Condition of ceilings 

Remarks 



48 CHAIN STORES 



Basement 

Feet front feet deep. Ceilings feet 



Stairway 

Elevator 

Outside entrance 

Fixtures 

Shelving 

Floor: Material 

Condition 

Drainage 

Windows 

Lighting . . . . : 

Condition of side walls . 
Condition of ceilings . . . 

Remarks 

Sub-basement 



Any storage yard to building?. 



Any storage shed outside?. 



LOCATING THE STORE 49 



Suitable for: 
Second Story 



Men's line 
Women's line 
General line 



. Feet front feet deep. Ceilings feet 



Stairway to main floor : Width Height of steps . 

Number of steps Finish 

Balustrade Landings 

Front Display Windows 

Other Windows 

Any large central opening to main floor? 



If not, the possibilities for such an opening. 



Partitions 

Fixtures 

Shelving 

Condition of floor Load . 

Condition of side walls 

Condition of ceilings • 

Lighting 

Heating 

Remarks 

What are floors above? 



i 



50 CHAIN STORES 

Renting Stores. — How much rent can a chain store afford to 
pay? This is a difficult question to answer. But it has been 
estabhshed by experts that there are certain percentages of 
gross receipts which should govern the rent paid by different 
types of businesses. For example, high class retail stores which 
are large advertisers can affordtopaysixpercent. of gross receipts. 
These figures should be taken as applying over a considerable, 
period, possibly for the entire period of the lease. During thii 
period, receipts should increase in proportion to rent. 

Taking the ratios up in more detail, Mr. NichoUs has compiled 
the following list : 

Shoe stores 8 

Department stores 3 

Five and tens — non-advertising 5 

Non-advertising specialty stores 8 

Theatres and hotels 9 

Drug stores, candy, fruit, etc 10 

Grocery stores : 10 

Cigar stores 6-8 

Barber shops, shoe shining estabhshments, etc 12 

Cloak and suit 6 

With such a wide variation, it is apparent that few varying 
types of chains will desire the same location. Such a table as 
the above is valuable in making estimates for new locations and 
in judging the performances of old stores. A great many stores 
may do better, but if one does less, it is a sign of trouble. 

Many policies are followed in regard to renting stores. Some 
chains prefer to secure sites that will do for purchase. Then 
they rent superfluous space to other retailers. In some cases, 
this policy has resulted in the chain store's obtaining its portion 
of the building free of charge, the overhead of the building being 
carried from rent derived from the other stores. 

The United Cigar Stores are famous as an exponent of this 
policy. The real estate department purchases a corner, remodels 
the stores, takes its own portion on the corner and rents the rest. 
Since the formation of the Retail Stores Corporation, it has been 
possible for them to secure locations and use them for either candy 
or cigar stores, and, in course of time, it is quite possible that j J 
their retail activities will embrace further lines of retailing. In ■ 



LOCATING THE STORE 51 

this case, the same block might hold several retail stores operated 
by different chains, all subordinate to the holding company. 

Locations which the real estate department pick up cheaply 
may be sold at a profit and still provide for the future of the 
company's chain store in that location. 

The real estate department has frequent occasion to scruti- 
nize buying habits. If it buys a building, it wants to know 
whether the location is suitable for a grocery, a drug store, a 
department store, a bakery, etc. It is almost as important 
that the other stores surrounding the chain store be prosperous 
as that the chain store be prosperous itself. Prosperity attracts 
trade. If the chain store selects its own neighbors, as it can 
often do by calling the attention of non-competing businesses 
to excellent qualities of the location, it can ensure the class of 
trade to which it wishes to appeal. That is, to its own pulling 
power is added the combined pulling power of all the other stores 
' and, since the buying appeal of the chain store is largely to the 
eye and the pocket book of the customer, any increase in pur- 
chasing traffic by the store is advantageous. It is well known 
I that people who come to buy in one store often buy articles which 
' they need in adjacent stores rather than go elsewhere. 

Wherever the chain store realty department decides to hold on 
to the property, it collects all rents and reports to the central 
organization. It also collects rent from the chain store itself. 
' This is often necessary since, although the chain realty depart- 
ment should operate at a profit, it is often necessary to operate at 
a loss due to large expenditures in improving new locations, pur- 
chasing property in advance of the city's growth, etc. 
I The Childs Company has data on practically every place suited 
to its needs in the United States. This detailed information 
I renders it fairly easy for it to keep ahead of its expansion 
I programme. It is devoted to the policy of making long term 
I leases, from 21 to 99 years. 

j When a chain store organization attains any size, there is no 
lack of locations offered for its inspection. One of the chain store 
j leasing companies has an average of five new locations brought to 
I its attention daily, and each one of these is carefully investi- 
' gated. One grocery chain of 50 stores in the Middle West says 
' ''our stores have attained such a standing in the community 



52 CHAIN STORES 



I 



that the developers of every new allotment in the city come to 
us and offer us a center lot for one of our stores. Other people 
continually offer us vacant storerooms for rent, or try to sell 
us lots. Right now we own about 18 lots on which we shall 
build within the next three to five years. In the meantime, 
we will rent several stores if we find the kind we want, in the right 
location, and if the rent is not too high. If the rent'is too high, 
we wait for it to come down, or look around for a place to 
build.'' 

Building vs. Renting. — It is probably safe to say that the 
great majority of chain stores are rented, although this depends 
to some extent on the type of business. This avoids a great deal 
of trouble on the part of the company in looking after a large 
real estate department and the worries that a real estate depart- 
ment always brings with it. Then, after all, the primary func- 
tion of the chain store company is retailing. Real estate is only 
a by-product of the industry, so to speak. 

But many chain stores have peculiar requirements. They wish 
a standardized front to which the neighbors may object. Most 
chain store fronts are made in such a way as to be readily recog- 
nizable. Therefore, to get in certain locations it may be necessary 
to purchase and remodel. 

Purchasing and building requires more capital and conse- 
quently a larger investment. There is more to lose if the 
property deteriorates, although there is also more to gain if it 
improves. The chain grocery store ordinarily prefers a one 
story building with a standardized front and standardized 
fixtures. A grocery chain, naturally choosing a low priced 
location, rarely finds it profitable to build additional stories to 
rent to tenants. The rental from the upstairs portion does not 
justify the added investment. 

The problem of a local chain is, in a way, quite different 
from that of a national chain. The local chain officials, at the 
start, are well acquainted with the character of the townsmen, 
and the buying habits of the people. They know by daily e^f- 
perience what the national chain investigator has to learn from 
statistics. That they often fail to achieve true success does not 
disprove the fact that their initial opportunity is better for 
profits than the national chain. They are on the spot, they are 



LOCATING THE STORE 53 

known, they are compact, and their problems are comparatively 
simple. 

Quality Locations. — For many years, in fact, until quite 
recently, chain stores were regarded as merchandising ventures 
exclusively devoted to the interests of the poorer classes. To be 
seen going in or out of a chain store was avoided. Merchants on 
the better streets frowned upon the advent of the chain store. 
When Childs bought their way on Fifth Avenue in New York 
City, there was great nodding of heads and portents of failure. 
But the Childs organization went ahead and erected a building, 
letting all but the ground floor. There was only room for 29 
tables, 116 seats in all. But the profit on each of these 116 chairs 
was carefully reckoned within a cent or two on daily turnover. 
These statistics had been secured by applying the results of long 
experience to the traffic passing the door. 

When the five and ten cent store decided on Fifth Avenue for its 
thousandth store, Mr. Woolworth went so far as to become a 
member of the Fifth Avenue Association. The bright red signs 
were kept but the window dressing was carried only half way up. 
It is reported the location makes no difference in the number of 
mousetraps sold and the luncheon counter is just as busy at noon 
as it is anywhere else. 

It is said the United Cigar Stores pay $27,000 a year rent 
for one of its Fifth Avenue locations. The company^s archi- 
tect was told to design what would be the most beautiful cigar 
store in the country. The exterior is in black and gold marble 
with the name of the company in specially designed letters of 
bronze and gilt. The familiar red signs are made narrower and 
less conspicuous. The bases of the counters and the showcases 
are black and gold marble. The showcase frames and all decora- 
tions are of bronze. The windows are dressed with the care of a 
jewelry store. 

Quality locations illustrate one very important trend in chain 
store development, and that is the tendency of chain store sys- 
tems to break into the exclusive retailing sections and, what is 
more, make a success in their new surroundings. 

Conclusions. — One of the reasons for chain store success may 
undoubtedly be ascribed to scientific locating of member stores. 
No retailer can afford to pass over the opportunity presented 



54 CHAIN STORES 

him to capitalize on the location. The fact that the chains 
have been able to go in under the local retailers' noses and cap- 
ture the best sites merely goes to show how badly new principles 
of retailing were needed in the community. 

The congested districts, as a rule, offer the best opportunities 
because of their compactness. The product, however, and the 
chain policy, may determine otherwise. It may be desirable to 
obtain the place which the most people pass every day, such as is 
the United Cigar Stores policy, or the company may be willing to 
seek less public locations at a lower rent because of other facilities 
for attracting trade. Either extreme is unsafe. A great volume 
of sales will carry a large overhead, but without this large volume 
of sales the large overhead would be a constant drag. Again, 
low rent in a back street might be uneconomical because of the 
great opportunities for that store in a better location. 

Every member of the chain organization should constantly 
be on the lookout for new locations. The man who sees oppor- 
tunity first is the man who succeeds, and in many cases a desirable 
location means dollars to the chain which is first to come on the 
scene. 

The whole question of location may be summed up in a few 
words. The site of the store should vary in distance from the 
traffic centers directly as the selling appeal of the chain. For 
example, men will not go out of their way to buy cigars, or 
candy, or razor blades, but they will go out of their way to get 
a pair of shoes or a suit of clothes. The first element in appeal 
is the nature of the product, whether it is a convenience article, 
that is, a necessity, or a shopping article, one which people will 
spend time to hunt for, the second is the price of the product, 
and the third is the publicity of the chain. The location of the 
store is almost inseparable from a discussion of these topics, as 
will be shown later. 



CHAPTER IV 
THE MEMBER STORE 

Outline 

Size. 

1. Large enough. 

(a) To hold stock. 
(h) To hold clerks, 
(c) To hold customers. 

2. Results of conservation of space. 

(a) Saving in 

1. Rent. 

2. Expense of cleaning. 
(h) Increased selling efficiency. 

3. Special problems of smaller chains. 

(a) Necessity of keeping stock in stores where warehouse is lacking 
or too small. 
Appearance of stores. 

1. The store front. - 

(a) Uniform 

1. In color. 

2. In lettering. 
(h) Distinctive 

1. In appeal. 

2. Easy to recognize. 

2. The interior. 

(a) Equipment standardized. 

1. Easy to equip new stores. 

2. Restore old equipment damaged by fire, flood, etc. 
(h) A mathematical problem. 

3. Arrangement of stock. 

(a) Most in demand 

1. Near front of store 

2. Nearest clerk. 

(b) Aisles wide. 

(c) Arrangement with regard to 

1. Movement of traffic. 

2. Lighting. 
Display. 

1. Of stock 

55 



56 CHAIN STORES 

(a) In windows. 
ih) On counters. 
2. Importance of price tags, 
(a) Counter display. 
{h) Manufacturers' helps. 
Window display. 

1. Difference in policies 

(a) Centralized at headquarters. 
(6) Managers allowed to trim. 

2. Importance of, in selling. 

3. Analyzing product for display purposes. 

(a) Influence of character of traffic. 

(b) Technique of window display. 

(c) Expense. 

4. The window trimmer. 

5. Teasers and window pasters. 
Counter display. 

1. Tie up merchandising with display. 



CHAPTER IV 

THE MEMBER STORE 

^'The chain idea may be likened to an octopus. The central 

organization is the head and the branch stores are the tentacles. 

If one tentacle is cut off, another grows to take its place. It 

is this way with the member stores. No one of them is vitally 

important for the organization, and if any store shows marked 

weakness, it can immediately be amputated, and another one 

started. This opening of new stores has become a real science 

in some chains. The process has been standardized so that 

; nothing further is required than to start the machinery moving 

and in consequence on the appointed date the store is ready for 

occupancy by the selling force, complete down to the last detail. 

^ We have discussed in a previous chapter the various problems 

( connected with locating the store. This chapter is a logical 

' continuation of the same topic. We investigate the amount of 

floor space required for various types of stores, the fixtures, 

the display, the window trims, and the general appearance of the 

store. We also discuss the stock and the arrangement by order 

of goods or by various departments. The keynote which is 

I again sounded is standardization. The nearer alike one store 

■ is to another, the easier it is to make repairs, replenish stock, 

j shift selling force, etc. 

The success of a chain organization is almost directly propor- 
tionate to the care it takes of detail, and the size, equipment, 
and arrangement of stock in the retail stores is of very great 
i importance. In a variety of ways, it eliminates waste, and 
eliminated waste means increased profits. Furthermore, it is 
just as important for the small chain to start with standard 
equipment as it is for the large chains, even although alterations 
may cost more. 

The Size of the Store. — The store should be just large enough 
to hold the stock, the clerks, and the customers. Every inch of 

57 



58 CHAIN STORES 

space over these requirements is waste. For an example of the 
utiHty of this practice, it is necessary to go back to the larger 
chains. In this case, the president of the United Cigar Stores, 
then George J. Whelan, decided that his stores must be com- 
pact. As a result, he saved rent, saved space, saved cleaning 
expenses, and brought practically every article for sale within 
reach of the clerk. The majority of the company ^s stores are 
one size, which makes it possible to use standard equipment in 
each store. 

The owner of a small chain, or the owner of one retail store who 
is planning to branch out and establish one or more other stores 
may ask: How shall I know how large to make my stores? And 
what shall I do with the rest of the space? YouVe shown me 
how valuable it is to have a location in the right place, but the 
only location I can get there is much too large for the business I 
expect to do. The chains which make a practice of owning their 
own realty make their own stores the regular size and rent the 
rest of the space to others. If the store is too large, get the owner 
to turn it into two stores and thereby make more rent. 

There is one note of caution to be sounded here. A small 
chain cannot, as a rule, concentrate its stock in such tiny spaces 
as the larger chains possessing much quicker turnover and 
adequate means of supplying deficiencies in stock almost imme- 
diately. This is one of the problems of the small chain — to have 
ample stock yet achieve rapid turnover. Thus a chain with two 
or three links may find it advisable to have slightly larger stores 
since it must keep its warehouse in the stores themselves. 

For example, there is a big variation in the size of chain grocery 
stores. Many of them are mere holes in the wall, using bins for 
shelves and representing a very low investment. Other chains 
run larger stores and carry a much heavier stock. One problem 
the grocery chain has had to confront is the desire on the part of 
the customer for perishable goods. Not to carry vegetables, 
baked goods, etc. means a positive loss of trade and sales in the 
other staple dry groceries. A meat counter, for example, attracts 
a great deal of trade. The Sam. Seelig Stores, of Los Angeles, 
California, rents space in its stores to butter, fruit, and vegetable 
concerns. The main idea has been to cut out all perishable 
goods and cling to staple groceries but the value of the presence 



THE MEMBER STORE 59 

of these other merchandising activities in the same store is 
recognized, and the result has been a succession of chain conces- 
sions. Thus a meat man will operate meat counters in several 
of these stores in one town. 

A middle western grocery chain has sublet a corner in some of 
its larger stores to meat markets. In three cases it built two 
stores side by side so that a meat market could be secured next 
door. A grocery, a market, and a drug store are all that are 
needed to form a small community. In one section this chain 
operated a grocery store next to a drug store. As a shrewd 
investment, the chain built a meat market next door and thereby 
secured enough additional rent to carry the overhead on its 
own store. It also increased trade, since people no longer had 
to go down town. 

There are other exceptions to the standard size for a store. 
Frequently stores in the heart of a large city must be larger than 
stores in the suburbs or than stores in smaller cities or towns. 
These are but the exceptions which prove the rule. Make 
your stores as nearly alike in size as possible. 

The Store Front. — Whenever a big chain secures a new site, 
arrangements are quickly jmade for erecting or altering the old 
store. When completed, the store has the same appearance, 
outside, as that of other stores of the chain. 

A person can stand on the main street of almost any sizable 
city in the United States and, looking around, he can tell immedi- 
ately what some of the stores within his radius of vision are. 
For example, on the opposite corner, he sees a store finished in 
red, with a shield beside the lettering. Clearly, this is a United 
Cigar Stores branch. Farther down the street is a much larger 
and broader red sign, with prominent gilt letters. Nearby, is a 
white store with script letters on the windows, gold letters on a 
white back ground over the store, and a pancake griddle in the 
window. Everybody would recognize these stores. But, in 
addition, there are any quantity of local chains which have their 
own color scheme, well recognized by the communities in which 
they operate. 

A uniform store front is an asset which has been proved very 
valuable. Coming into a new community, the store finds patrons 
among those to whom its name is familiar or who have actually 



60 CHAIN STORES 

bought at its stores in other locahties. Like the railroad station, 
the member chain store becomes a landmark. 

This uniformity of appearance is nothing more than the idea 
of the signboard standardized. The store is picked out by the 
familiar color which can be seen much farther than the name. 
Red is a favorite color in grocery stores, The Piggly Wiggly 
stores are painted blue, brown, and yellow, with Piggly Wiggly 
in white letters on a blue background, and '^AU Over the 
World ^' printed beneath. 

Not only is the color scheme of the exterior the same but the 
fronts and entrances wherever possible conform to the standard. 
In other words, every store in a chain is as nearly like the rest 
as possible. 

Equipment. — The analogy can be carried out as far as the 
interiors of the stores are concerned except that here uniformity 
is not so much a matter of advertising importance as of expense, 
replacement, etc. Make your own equipment if possible. The 
larger chains do, and find that it pays. They also keep extra 
equipment on hand in case of opening a new store, a fire in an 
old one, etc. When the Federal Bakery at San Antonio, Texas, 
was ruined by the flood of 1920, in five^ days new equipment had 
arrived from Davenport, Iowa, to take its place. In a chain 
such as this, or the United Cigar Stores, or some grocery chains, 
it is possible to standardize equipment almost absolutely. Once 
given the amount of space in the store and the amount of goods 
to be carried, and the equipment is a mathematical problem of 
shelves, counters, etc. 

But when it is a question of stores, the size of which may vary 
a great deal, such as a five and ten cent store, it is more a question 
of standardizing units. For example, the counters may be uni- 
form, although their number may vary in the stores, according 
to size. 

Figure 4 shows the interior of a Federal Bakery in Knoxville, 
Tenn. Here the local manager has used the standard equipment 
as a basis, and for $12.00 bought some laths and artificip-l 
flowers and added the extras himself. Note the display of goods 
and the compact arrangement, with just room in front of the 
counter for customers and just room in back of the counter for the 
sales girls to move around without interfering with each other. 



THE MEMBER STORE 



61 



Arrangement of Store. — Where shall the merchandise be placed? 
Experience has worked out rather definite positions for most 
merchandise. As a general rule, the merchandise most in 
demand is nearest the clerk. In the grocery store these articles 
are directly in back of the counter. In a store with a number of 
departments goods most in demand are at the front of the store. 




Fig. 4. — Interior of Federal bakery. 

This rule, however, is capable of exceptions. Mr. Kells, 
manager of the Metropolitan Stores, Inc., says, ^^You have to 
know just what goods will sell in certain locations. Jewelry, 
for instance, will not sell in the basement, but must be well up 
towards the front door with plenty of light. Men will not hunt 
for things; therefore, their department must be easily accessible. 
Hardware is in the basement, music to the rear, quick sellers to 
the front.'' 

If it is necessary to have aisles, these should be wide enough to 



62 CHAIN STORES 

avoid overcrowding. Narrow aisles tend to decrease sales of 
goods on display at the point of congestion. Arrangement of 
goods in one unit of a chain should be absolutely the same as in. 
other units. In the Piggly Wiggly stores there is a place for 
every bar of laundry soap and every bottle of ketchup. Every- 
thing is arranged for convenience with the heaviest goods nearest 
the exit. One hundred and eighty-five customers an hour can be 
handled easily. 

A. L. Townsend says, ''at least 50 per cent, of the success of 
an institution, large or small, can be attributed to the stage 
management of the store and of the merchandise." In the 
chain, it is the reproduction of this efficient stage management in 
many stores that does so much towards standardizing sales and 
profits. 

A sales manager of a chain store system is quoted as saying: 

''Give me a certain line of drugs and toilet preparations. I will stock 
up ten average drug stores of the old regime and then build ten competi- 
tive stores of the new type. The latter will inevitably get the business, 
get it in a big way, despite the fact that the other shops keep the same 
identical line. It is in the method of display, in spectacular stage dress 
of the store and the hundred and one details of service supplied to these 
stores. '' 

The Fifth Avenue Store of the F. W. Woolworth Co. is one in 
which ''stage" arrangement has been carried to the nth degree. 
Everything in this store has been arranged with an eye to the 
effect. Ribbons, jewelry, and candy are at the front. The 
store contains 34 departments, two more than usual, the two 
extra ones being the light lunch and the soda fountain. Several 
departments are duplicated on the main floor and in the basement 
on the theory that if customers pass an article on one floor they 
will buy it on the second. 

J. B. Levey, General Sales Manager of the United Shirt Shops, 
says in an article in The Haberdasher: 

"It is an established fact that the movement of customers in a shop 
affects the sale of merchandise. The fixtures are placed accordingly. 
In entering a store, we usually adhere to the law of traffic regulations, 
and keep moving to the right. Points of sales vantage are usually about 
10 to 12 feet on the right at the entrance of the store and on the right 



THE MEMBER STORE 63 

center, where you can probably sell more merchandise than in any other 
part. Another good point of sales vantage is the extreme rear of the 
store, where people, having reached the turning point, naturally stop 
and look around. Personally, I believe the best selling spot in the store 
is where the incoming and outgoing traffics criss-cross. That point is a 
few feet from the entrance, on the right-hand side. Usually there is 
some confusion when people are walking in and out all the time, and it 
causes them to move more slowly than ordinarily, thus affording another 
opportunity to glance around. ^^ 

All goods should be priced carefully and plainly. If the goods 
are on shelves, price should be directly underneath, or, if in 
trays, as in a variety store, the trays should be marked. All 
articles of a kind should be by themselves, not hit-or-miss any- 
where, as was once a common occurrence in retail stores. If a 
woman wants breakfast food in a grocery store, she will see all 
the different brands and kinds grouped in one location, and that 
location she knows from habit. 

Display. — If you want to sell your goods, put them where 
people will see them, and make them look attractive. This, like 
many other chain store principles, is nothing more than ordi- 
nary retail salesmanship. All goods cannot be displayed in the 
window, but all, or nearly all of them can be displayed on the 
counter's. This, of course, is not an easy matter. A poor 
display repels rather than attracts. But it has long been known 
that there is no easier way of selling goods than by efficient 
methods of display. 

Take, for example, the five and ten cent store. Once in a 
while, you may find trays that are out of order and messy, but 
you may be sure they will not remain that way long. You will 
note that counters are filled, but never junky, and that shop 
worn goods are surprisingly rare. Nor are there any rusty goods 
on the hardware counter. Probably display sells more articles 
in the five and ten cent stores than the name of the brand or the 
need for the object. People buy what attracts them on the 
counters. The price is negligible, and, as explained elsewhere, 
the five and ten cent stores pursue a rigorous policy of letting the 
goods sell themselves — by display. 

The Piggly Wiggly Co. follows the same policy, and here the 
customers themselves pick out the goods they desire. Therefore, 



64 CHAIN STORES 

of necessity only those goods are sold which are in demand and 
consequently on display. 

Note the Federal Bakery illustration on page 61, and you will 
see that baked goods are plainly and attractively displayed in 
racks. 

Most chain executives believe that if the prospective customer 
can be got to enter the store, the display will do the rest. But 
he must first be induced to come in, and therefore the great 
importance of the window display. 

Window Displays. — All chain authorities agree on the impor- 
tance of the window display. Some chains centralize window 
dressing at central headquarters and pay large sums to experts 
for their services. Other chains delegate the duty of trimming 
windows to the store managers, who are thus allowed some scope 
for originality. The former method insures an even standard of 
excellence throughout the country while the latter allows more 
individuality and initiative. The United Cigar Stores have 
their corps of window dressers at headquarters. 

Location and the window display take the place of advertising 
for the majority of chain stores. The location brings them the 
traffic, and the window trims attract the trade to the inside. 
Some corporations employ several chain experts, and keep them 
traveling over the country, visiting the several branches and 
teaching the managers the fundamentals of good window trims. 
Others do the same thing by mail. The principal features of a 
good window trim may be observed by referring to Fig. 5. 
Following are the instructions to managers : 

'^In presenting the above window display featuring ^Bringing 
Home the Bakin/ your attention is called to the holiday atmosphere which 
surrounds the entire display (for December). The holly background 
sets off the window attractively and conveys the holiday spirit. The 
large centerpiece featuring the trademark is finished in seven attractive 
colors. The display card has been handled in poster effect so that the 
striking colors will stop the passing crowds. Note how the two smaller 
cards tie up with the centerpiece, and carry out the 'Bringing Home the 
Bakin' message. The old window-trick of tying up the products with 
the display always commands attention because the eye naturally 
follows lines. In this particular display, note how easily you can work 
out this idea by drawing baby ribbon from the packages right to your 
products. '^ 



THE MEMBER STORE 



65 




Fig. 5. — Tying up window display with the product 




Fig. 6. — Japanese window display. 



66 CHAIN STORES 

Now, what do we find in this window display? 

1. A seasonal atmosphere, in this case Christmas, and shown by the 
holly. 

2. An attention-attracting feature — in this case the poster effect of the 
display card. 

3. Balance, secured by flanking the big card with smaller cards. 
4 Products tied up with the display by ribbons. 

5. The trade mark featured, which is good advertising. 

Another window display of the Federal Bakeries is shown in 
Fig. 6: 

1. The seasonal atmosphere here is changed to a national atmosphere, 
that is, Japanese. 

2. The center display on the white background forms the feature which 
attracts the attention of passing traffic. 

3. The fans on either side furnish the balance. 

4. The product, in this case Tokio bread, is set off by the fans, which 
form a neat background for it. 

5. The trade mark, ^^ Tokio, '^ coincides with the atmosphere, and is 
featured on the poster, on the fans, and on the lanterns. 

Another point is that nothing but Tokio bread is shown in 
this display, while in the previous illustration a variety of 
products was shown. 

There are two kinds of window display, the general display 
of products and the special feature display. In the general 
display, some particular article may have greater prominence, 
but if the selling effort is to be directed to one article, it is a 
better plan to devote all the window space to this product. Of 
course, this does not always hold true, depending as it does on 
the nature of the product. 

Take a shoe store, for an example. It would do little good to 
feature some particular shoe, since individual tastes differ so 
widely. Therefore, show a large variety at a scale of prices. 
But in the case of a drug store, where even the smallest carry 
more than 3,500 different items and the large stores a great many 
more, a feature window display should be used. It may feature 
a brand of products, or a single product. In city stores, toilet 
products are more frequently featured than medicines. In 
small towns and country stores, medicines with well-known names 
are featured. One large advertising agency says the ^^ question 



THE MEMBER STORE 



67 



of whether a window can or cannot be obtained from a given 
druggist is largely a combination of the volume of sale the 
medicine commands plus the profit offered the druggist. If the 
sale is reasonably large and the profits fair, the druggists will use 
windows for these products at the height of the selling season/' 
In other words, if you sell one product, such as shoes or hats, 
etc., show a variety of styles and makes in your window trim. 
But if you sell a large variety of products, such as groceries or 




Fig. 7. — Window pasters. 

drugs, arrange a succession of window trims featuring a particular 
brand or product. 

Pasters, Packages and Counter Displays. — Pasters put on 
the windows are a cheap and inexpensive method of attracting 
attention, particularly when stores are putting on special sales 
nearly every day. Grocery stores and drug stores frequently 
use these, the pasters, themselves, of course, being furnished by 
headquarters. Window pasters attract immediate attention, 
whether price or product is featured. 

Figure 7 show^s how the window paster was used in the same 
Tokio campaign previously illustrated. Friday and Saturday 
previous to the campaign, the paster was used as a 'leaser'' 



68 CHAIN STORES 

and was replaced by the regular paster the following week. A 
paster is primarily used to attract attention. People look at 
the paster before the window trim, as a general rule. In a city 
where the chain maintains several stores, the repetition of these 
pasters in each store is sure to arouse interest. 

Packages are used as displays, inside and out. More and more 
manufacturers are coming to realize the value of display as 
connected with their own products. Consequently, the designing 
of packages has become almost an art. In the drug store, for 
example, many articles are sold solely by the package. It is 
especially true also in the grocery business that packages sell 
a great many goods, and hence the value of displaying well- 
known packages in window trims, etc. 

In the Piggly Wiggly stores, as explained previously, the pack- 
ages are merely arranged on the shelves and the customer allowed 
to take her pick. Where the chain manufactures its own private 
brands in competition with advertised brands, and where it 
does no advertising itself, it must rely almost wholly upon its 
package display for selling the goods. If the goods are out of 
sight, no one would ask for them, and, if in sight, more people 
ask in proportion to the display value of the package. 

Some chains make a habit of using counter cards, either 
furnished by them or by the manufacturer, who often finds it 
very much to his advantage to tie up closely with the merchandis- 
ing efforts of the various chains dealing in his products. 

Show cards can frequently be used to good effect either in 
the windows or on the counters. In the ordinary store such a 
card would read something like this ^^Felt hats reduced to $3.0C 
or simply ^^Lux 10 cents.'' The sales department of the chain 
store organization ordinarily makes the message on the show card 
interesting enough to attract passers-by and customers. If the 
reduction in the price of the article is important enough to 
feature, there are surely some sales arguments which can be 
featured also. 

The object of all display is to attract. Therefore, make 
your displays attractive. The more people you get in the store, 
the more sales you can make. Good display is merely another 
aspect of good merchandising. When you advertise in a news- 
paper the advertisement may or may not be read by the prospec- 



THE MEMBER STORE 69 

live customer. A far larger proportion look at the display 
material in the store by which they pass. 

Appearance. — The chain store should and can excel in general 
appearance. Not only the exterior, the interior, the equipment, 
and the stock can be standardized, but the lighting and the gen- 
eral effect of neatness. The Piggly Wiggly stores have done 
away with window trims. The windows look right into the store, 
thus making the goods in the store serve as window trim, and 
relying on their general appearance of attractiveness as well as 
the novelty of their idea to attract people into the store. The 
United Cigar Stores, according to President Wise, notice an 
almost immediate influx of customers when it is possible to 
keep open the doors, and this is noticeable in congested districts 
especially. He also stresses the value of night lighting. 

As a matter of fact, there is nothing which attracts the average 

I customer more than cleanliness and neatness. If a chain had a 

' monopoly on the trade in a district through its price appeal, 

cleanliness might matter less, but where there is such keen 

\ competition between chains, every factor which lends attractive- 

' ness to the store is exceedingly important. In a grocery store, 

for example, where the majority of the customers are women, 

this factor looms up. Broken boxes, sawdust, scraps of paper on 

the floor, flies, all of these detract from the store appearance. 

Clean windows are another point to stress. ^^Were your 
windows clean?'' is one of the first questions asked by the Regal 
Shoe Co. when one of its stores begins to fall off in sales. Clean 
paint is still another point. Fresh merchandise, no dust, orderly 
arrangement, each one of these factors has an incalculable but 
( important part in helping to make the retail links of the chain 

successful. 
j There is a case quoted in New York where in one block 
I there were seven places selling candy. A new chain candy store 
I moved in. One of its competitors was selling goods of its own 
j make, trade-marked, of course, but employing no special methods 
of selling, no novel containers, etc. There was another slightly 
1 higher-grade store of the same general nature with a shop neat 
' and clean, but with nothing particularly remarkable. Candy was 
sold in two drug stores and three tobacco stores. When the new 
' store moved in it stressed appearance at once. The windows 



70 CHAIN STORES 

were made bigger and brighter, each box on display was opened, 
prices were plainly marked, all showcases were uniform and so 
placed as to obtain the best display of the contents. All con- 
tainers were designed to suit the brand of candy with vivid * 
colors and attractive designs. Names and prices shown in the 
window were repeated inside. 

To close this section, we quote from the statement of the policy 
of the Kroger Grocery and Baking Co. in regard to store 
appearance : 

1. Fresh paint — plain name i 

2. Clean windows. I 

3. Clean interior. f 

4. Serviceable counters and equipment. 

5. Small, well assorted, packaged stock. 

6. Signs on windows — fresh daily. 

7. Lots of plain price tickets. ] 

8. No cluttered-up corners. \ 

9. No goods on floor — everything in boxes or on shelves. f 

10. Neat, business-like, and polite clerk. I 

11. Special leader daily. k 

Conclusions. — This chapter has been devoted to the physical 
aspects of the member store. The location of the store and its 
physical appearance are inseparably connected. After finding 
the right location, it is necessary to let passers-by know what the 
store has to offer. Hence the enormous publicity value of the 
standardized front lies in the fact that its mere appearance on 
a city or suburban street signifies to the public the exact 
information and reputation which that chain has made for itself. 
The appearance of the individual, independent store is of value 
to that store alone, but the appearance of the individual chain 
store is of value to every other store in that chain, at present 
established or prospected for the future. 

Throughout this chapter the attempt has been made to lay 
emphasis on the standardization of all the physical aspects of 
the store, of its exterior and interior, of the size and the arrange- 
ment of the stock for the best convenience of the clerk and the 
public. By whatever methods it is carried out, the following 
principle is universally applicable: '^Make the member stores 
as attractive as possible, inside and out, and results will be 
commensurate with the effort. '' 



CHAPTER V 
PURCHASING 

Outline 

Buying channels. 

1. Tendency of all large chains to buy direct from 

(a) Manufacturers. 
(6) Growers. 

2. Some indirect buying through 

(a) Jobber. 

(b) Wholesaler. 

(c) Broker. 
Advantages of purchasing direct 

1. Saves jobbers' discount. 

2. Secures direct delivery. 
Disadvantages. 

1. Purchasmg direct of articles 

(a) In small quantities. 

(b) Of fluctuating price^ 

(c) Keeping quahties not assured. 

(d) Little-known brands. 

2. Necessary to assume carrying charges 

(a) And expense of distribution. 
Purchasing terms. 

1. Cash. 

(a) Saves further discount. 
(6) Saves bookkeeping. 

2. Future dating. 
Purchasing in advance. 

1. Depends on 

(a) Nature of the product. 

1. Much less danger in staples. 
(6) PoUcy of the company. 

2. Taking advantage of seasonal cuts. 

(a) Ordinarily a time of year when product is sure to be cheaper 
than at others. 
The purchasing organization. 
1. Personnel. 

(a) Chief buyer. 

1. Assistant buyers. 

71 



72 CHAIN STORES 

2. Duties. 

(a) To purchase goods for entire chain. 

(6) To purchase saleable goods. 

(c) To purchase goods on the lowest terms for the highest quality. 

3. Requisites of chain store buyer. 

(a) An expert on certain line. 

1. Knows sources. 

2. Qualities. 

3. Price trends. 

(&) Wide circle of acquaintances. 

(c) Goes and looks for products where they are for sale. 

4. Desirability of maintaining purchasing agents in various parts of 

country and abroad. 
Buying policies. 

1. Chains where all buying is done at headquarters. 

(a) Choice of goods and products wholly in hands of purchasing 

department. 
(6) Local managers with advisory voice in choice of articles. 

2. Chains where some products bought locally by manager. 

3. Chains where purchasing is done by member stores. 
Buyer and manufacturer. 

1. Possibility of cooperation. 



CHAPTER V 

PURCHASING 

The controversy which has gone on for so long over the abihty 
and the practice of chain stores in selling goods at a lower price 
than their independent competitors has revolved about the 
question of purchasing. The larger the organization, and the 
larger the orders which it can place, the better the price which can 
be obtained from the manufacturer. Jobbers were at one time 
very prominent in organizing and helping retail chains, but no 
class now is more outspoken as a whole in denunciation of the 

I chains than jobbers. Just as soon as a chain organization feels 
itself strong enough, it stops buying from jobbers, wherever 
possible, and goes straight to the manufacturer or grower. 
Some chains are able to purchase the whole output of factories. 

' The ability to buy the right goods at the right prices is one of 
the first and most important requisites of chain store success. 
This ability, in the great majority of cases, is gained by a central- 
ized purchasing organization and a trained staff of buyers. 
In fact, as mentioned previously, a central purchasing organiza- 
tion is one of the fundamental requisites of chain store success. 
The larger the organization, the more important and the more 
complicated do the duties of this purchasing department become. 
In this chapter, it is intended to discuss the general purchasing 
policies of chain organizations with specific reference to some of 
the most common policies. The accounting required in the 
purchasing department has been developed completely in a 

I following chapter. 

I Buying Channels. — Generally speaking, the chain store buyer 

I can purchase either directly — from the manufacturer, grower, 
etc. — or he can buy indirectly — from the jobber, wholesaler, 

; broker, etc. In general, the chain store prefers to buy direct, 

(because in this way the jobbers' margin, which in many cases is 
as low as two per cent., could be saved. Even two per cent, is a 
large consideration when several carloads of one item are used 

f 73 



74 CHAIN STORES 

in the course of a year. Naturally, the chain stores work to get 
on the direct selling list of all the manufacturers. This is not an 
easy proposition. Manufacturers, under the veiled or open 
threat of jobbers to discontinue their lines, hesitate. They are 
uncertain as to the continued prosperity of the chain store and fear 
to find themselves shut out from the channels of distribution in 
case of failure. This is especially the case where branded goods 
are concerned. The manufacturers of Kellogg's Corn Flakes 
had a famous controversy over selling direct to chain stores. 

As chain stores have become more powerful and the old-line 
jobbers have become weaker, conditions have changed so that 
now practically all chain stores are able to buy everything 
direct. The inability to buy direct and the consequent entry of 
some chain stores into manufacturing will be discussed later. 

So much for direct purchasing. The attitude of the manu- 
facturer has changed. He prefers to create consumer demand for 
hi& product by judicious advertising rather than to shut himself 
out of a sure- and steady retail outlet. 

This, of course, does not mean that the jobber has been elimi- 
nated. There are frequently articles needed which are used in 
such small quantities that it is found better policy to let the 
jobber carry the risk and pay him for it. This is also true of 
articles the price of which is likely to fluctuate violently. In 
some cases, the chain store y refers to let the jobber carry the 
risk. 

The ordinary policy, let us repeat, is to buy direct. But the 
following is the experience of one medium-sized grocery chain. 
These people usually buy canned goods direct from the officials 
of the canning companies. But often they deal with a canned 
goods broker, who acts as the canners' salesman. One broker, for 
example, sells them whatever they want from two Michigan 
canneries, and also represents the account of a sal-soda firm, a 
large pea-bean grower, a peanut growers' organization, etc. 
Naturally, this broker, with his varied lines of goods to sell, 
can afford to get around to his trade oftener than ,a representative 
of only one house. In addition, this man sells them beet sugar 
when they want it. They could buy beet sugar direct by tele- 
graph, but as long as it does not cost any more to buy through a 
broker, it is a big advantage to have a broker handle the business. 



PURCHASING 75 

He takes an interest in them, wants to see them make money, 
and frequently gives advice as to market changes that are well 
worth while. 

The channels of purchase are more or less determined by the 
policy of the chain management. The Kroger Grocery & Baking 
Co., for example, one of the largest grocery chains, made it 
a cardinal point of their policy to buy direct, not only from 
manufacturers but from growers. Other chains will buy from 
wholesalers and jobbers where they consider the price is low 
enough, but these are ordinarily the small and medium-sized 
chains. 

The **Five and Tens." — Nowhere is purchasing more im- 
portant than in the case of the so-called five and ten-cent stores, 
where the ability of the store to stock articles is more or less 
dependent on the price at which these articles are purchased. 
During the war, all the large chain store organizations found it 
necessary to abandon the 10-cent limit with the exception of the 
Woolworth chain. This was due entirely to inability to pur- 
J chase a large enough variety of goods to retail within the 10-cent 
' limit. And the success of a five and ten-cent store chain is deter- 
I mined by the volume of sales it can attain. 

Woolworth was able to maintain its price level throughout 
, the war by the enormous volume of sales. For example, in one 
I year they sold nearly 90,000,000 pounds of candy, enough to fill 
J a train of freight cars 24 miles long. This was not inferior 
j candy. But the enormous volume of sales enabled the manu- 
, facturer to make a profit on pure candy even at the low prices. 
I Illustrating this point further, in one year Woolworth sold more 
; than 9,000,000 yards of curtain material, 350,000 barrels of 
, glass ware, 20,000,000 pieces of enamelware — enough to load 
I a freight train 7}-^ miles long. In 1918, the year of the influenza 
I epidemic, they sold 54,000,000 handkerchiefs at the regular 
I price limit. Despite the fact that the cost of raw material kept 
shooting up like a rocket, this enormous turnover allowed sales 
> to be made at a profit. 

As the Woolworth Co. says, ^^The Woolworth stores buy 

' their goods where goods are to be had, and are ruled by the same 

economic laws of manufacture and selling that govern every other 

' retailer. The more of a thing that can be produced, the lower 



76 CHAIN STORES 

the price (3an be/' They go on to illustrate their point and the 
example is well worth quoting, although it has been used before. 

One of the Woolworth buyers saw a ring which retailed at 
fifty cents. He thought this ring would go well in the Woolworth 
stores and accordingly approached the manufacturer. 

^'Absurd!'' was the manufacturer's comment, ^^I can't make 
that ring so you can sell it at ten cents. Anyway — I am selling 
plenty as it is — more than 450 dozen this year." 

The buyer merely said that he could sell a '^ great quantity " and 
by dint of persuasion got the manufacturer to try the experiment. 
During the first year 5,000 gross were handled, or 60,000 dozen. 
This is exactly the point. If the manufacturer only made 450 
dozen, he had to get fifty cents at retail, but if he made 60,000 
dozen the economies he could effect in manufacturing, standardi- 
zation of processes, etc., offset the lowered retail price. 

Most retailers base their selling price on the basis of the 
purchase and overhead cost, and this same policy is followed out 
by the five and ten-cent store chains. 

Purchasing Terms. — J. C. Penney says the first principle of 
merchandise is to go where the article is for sale at first hand and 
then to offer cash. Here we strike another reason for chain 
store purchasing efficiency. The chain store pays cash. In this 
way it obtains a further reduction in price by discounting bills 
promptly. 

In 1921, the Kroger Grocery & Baking Co. advertised in 
the produce papers stating that it was in the market for carload 
lots of apples, potatoes, onions, cabbage, sweet potatoes, peaches, 
melons, and oranges, bought direct or consigned by grower or 
shipper. 

The American Stores Co. has also been steadily advertising 
along this line. The Kroger advertisement reads in part as 
follows: ^^The more than 950 Kroger stores form a direct out- 
let, Mr. Grower and Mr. Shipper, over our counters to the 
consumer. Our tremendous outlet will make a steady market 
for you." / 

The grower has the option of accepting cash or consigning at 
the highest market price. 

In some cases a chain is given the privilege of future dating. 
That is, the bill is dated several weeks later than the date on 



PURCHASING 77 

which the deHvery of the goods is made. Frequently the goods 
are ah'eady sold before the bill comes. 

Chain stores have found that buying 'for cash is as advan- 
tageous as selling for cash. It ensures prompt service and de- 
livery from jnanufacturers as well as saving in discounts and 
bookkeeping for the chain. 

Buying Ahead. — Whether it is advisable to purchase far in 
advance. is still a moot point in chain store operation. There are 
arguments on both sides. Generally speaking, however, there is 
much less risk in contracting ahead for staple articles than for 
products in which demand fluctuates or totally disappears. 

For example, it has never been the policy of the J. C. Penney 

Co. to buy far ahead. Its policy is to buy frequently and for 

cash. It holds that it is no part of the merchandising function 

to speculate in goods values. It might be possible to make 

I large profits and it might not, but, in any event, it would mean 

' altering the present cost-plus price policy. As the system 

is arranged now, the stores turn their stock on an average of five 

\ times, and when any major change in price reaches them, the stock 

' is already sold. Neither branches nor stores carry stock above 

current needs. This naturally means that there are no special 

sales. 

A certain grocery chain which never makes merchandise 
contracts for a year ahead, and seldom buys even staple goods 
I in carload lots, has evolved the following system. Suppose it 
i buys laundry soap in 100-case purchases. At the same time, it 
stipulates that delivery shall be made in 10-case lots and by the 
' time the whole has been received, it has been nearly sold. It 
, always tries, however, to keep from 30 to 60 days' supply on 
: hand. 

1 If a chain overloads, it is usually in a far better position, be- 
i cause of its numerous retail outlets, to unload than is its inde- 
! pendent competitor. Yet the evils of overloading are just as 
1 apparent. ^^Men's Wear'' publishes an article showing how the 
chain men's furnishings shops over-expanded and over-loaded 
j with merchandise. Contrary to many of the chains, the product 
< which they sell is not a necessity in the strict sense of the word. 
• A buyers' strike will hold up sales indefinitely and this is exactly 
' what happened. Where the Penney company came through the 



78 CHAIN STORES 

period of storm and stress with comparatively small losses, some 
of these chain furnishings shops had large reserves of merchandise 
and also had commitments a long way ahead. Because of the 
nature of their trade, their stock proved unwieldy. Sixty per 
cent, of their business was in shirts and the public was abso- 
lutely indifferent to shirts. 

Buying far enough ahead to ensure supply in adequate quantity 
is necessary. Buying ahead too far is dangerous. There is a 
proper middle distance which experience will determine with a 
fair amount of exactitude. 

One grocery chain, the purchasing policy of which is typical 
of many of the medium-sized chains, says, ^^ We buy canned peas, 
corn, tomatoes, etc., in large enough quantities to last us through 
most of the year. Dry groceries, like beans, flour, corn meal, 
sugar, etc., are bought just from week to week. We probably 
make a couple of turnovers a month on some of these items, 
whereas with certain canned goods we have to carry them in 
stock a whole year before they sell. Canned red pie cherries, 
rhubarb, and spinach, for instance, are packed in the early 
summer but do not sell in any big quantity until the following 
spring, when people get a touch of spring fever and want these 
three spring-like items.'' 

. This brings up another point — seasonal purchases. It is 
true that, in certain lines of merchandise, it is possible to predict 
in normal times a particular month or months when the price 
will be especially low. In canned goods, for example, the price 
will be low right after the canning season, and if the chain wishes 
to purchase the output and store it away, it is possible to reckon 
out approximately whether this policy will prove profitable or 
not. This problem, however, is not confined exclusively to the 
chain store but is merely one of the general rules of purchasing — 
to buy when the article is cheapest. 

The Buyer. — The buyer in any organization is an important 
individual, but in the chain his position is particularly prominent. 
But whereas in a small organization a buyer often has to turn hjs 
attention to many dissimilar articles, in the larger chains the 
buyer is an expert in a particular line. He knows the manu- 
facturers of that article, he knows the sources of supply, the 
channels of trade, and the market trends. That is, by a careful 



PURCHASING 79 

study of the market, connected with a study of business condi- 
tions in general, he knows fairly well what the market will do. 
He usually belongs to local and national organizations of purchas- 
ing agents, and subscribes for publications devoted to purchasing 
as well as trade papers of the industries from which he gets his 
supplies. He has a wide range of acquaintances and is an 
exceedingly wide-awake business man. Good buyers are always 
in demand. 

All purchases in the chain are made by the buyer or purchasing 
agent, as a general rule. Local managers, however, are often 
given an opportunity to pick up perishable goods from local 
sources and sell them. Grocery chains often do this. 

To return to the buyer, he has, depending on the size of the 

chain, several assistant buyers under him who are all experts in 

different lines. The five and ten-cent chains, for example, have 

•I large staffs of buyers, each experienced in a particular line. 

I The main buying office of the J. C. Penney Co. is in New York, 

^ with branches at St. Louis and St. Paul. The whole idea is 

to provide a pipe line from the sources of supply direct to the 

j distributing stations. As New York is the center of so much of 

' the buying activity, many chains, like the Penney organization, 

maintain offices there for purchasing purposes. 

' • It may be necessary to maintain buyers at distant points. 

' Clothing chains, for example, might have buyers in New York and 

^ Chicago, the centers of the garment trade. They might even 

I have buyers in London or Paris. Shoe chains that do not manu- 

I f acture their own product would probably have a buyer stationed 

I in some shoe-manufacturing center. 

I At all events, the chain store buyer goes out to buy and does 

not remain at home waiting for salesmen to visit him. 
I Buying Policies. — How far may the buyer act on his own judg- 
I ment and to what extent must he follow the policy of the store? 
' There are many variations. In general, however, some such 
' policy as the following is used: 

1 . For staple sellers a certain rate of turnover has been estab- 
lished. By keeping records it is known just about what quantity 
of the article is needed of a given quality and a given style. 
Therefore, the buyer is authorized to keep a comfortable margin 
ahead of requirements. 



80 CHAIN STORES 

2. In the case of novelties and new products, the store manager 
is often given a certain amount and told to feature it. As 
results come in, the buyer is informed and from these results he 
makes corresponding purchases. i 

Some buyers may have more authority, some less. If a buyer! 
could prove to the management of a chain that he had an oppor- 
tunity to buy up the product of an entire plant for a year and also 
could show how that product could be moved, in all probability 
he would be authorized to go ahead and make the purchase. 

Some of the larger chains permit local purchasing in some cases, 
as has been mentioned before. In the big cities where there is 
more than one store, an assistant buyer may be sent out to pick 
up articles out of stock to tide the stores over until shipments 
arrive from the company. One company is known to allow its 
store managers to buy from traveling men. The store manager 
may be allowed to purchase any extraordinary bargains, provided 
he is sure he can dispose of the merchandise thus procured. 

Branded Goods vs. Private Brands. — The question of private 
brands is discussed elsewhere, but a few words are necessary 
here in relation to the buying policy. The purchases of a chain 
are made strictly according to the criterion of what goods it is 
going to be able to sell, and at what prices. That is, the needs 
and desires of the community to which it caters are paramount. 
If there is a call for advertised goods, the chains endeavor to 
satisfy this call. At one time there was much substituting in 
chains, but this policy, when found unprofitable, was abandoned, 
and instead the policy was adopted of selling the customer what 
he wants. 

Some communities demand advertised brands; others prefer 
the larger quantities possible to obtain from the chain^s private 
brands. 

The buyer of a five and ten-cent chain is said to divide his pur- 
chases more or less as follows : 

1. Advertised lines. Such articles catch the eye of the consumer 
immediately on entering the store and make prestige for tlje 
five and ten-cent company. More and more advertised articles 
are finding their way to their counters, owing to the profitable 
results obtained by manufacturers from this easy method of 
sampling (discussed in the following section). 



PURCHASING 81 

2. Articles which will give impression of a great deal for the 
money. These have been purchased by the chain at bargain 
prices with this end in view. 

3. Special feature articles made to draw trade. 

Buyers should constantly look for good prices but it is a mistake 
to imagine that quality should be sacrificed. A chain store 
ordinarily has to maintain a certain standard. In fact, a great 
part of its trade is obtained by a recognition of that standard of 
quality. The buyers must keep this point in mind all the time, 
whether they are purchasing branded or unbranded goods. 

Some chains, such as the Piggly Wiggly, confine their purchases 
entirely to branded goods. They prefer to let the manufacturers 
assume the selling effort. Other firms, such as Penney, buy only 
staples — no fancy or unusual goods. Their appeal is directed 
to the middle class, and they do not care to deviate from the 
policy of carrying only goods in ordinary demand. In shoes, 
for example, they do not carry '^Double A.'^ 

In a great many chains, we have the policy of selling branded 
goods and private brands as well. In fact, this seems to be the 
modern trend — to allow the customer to decide what the store 
shall sell. This policy, of course, is directly reflected in the 
purchasing department. 

The Buyer and the Manufacturer. — Some buyers have found 
it to their advantage to get in extremely close touch with the 
manufacturers. They have been able to contribute towards the 
more efficient handling of the manufacturers' own problems. 
Manufacturers, as the F. W. Woolworth Co. says, are not 
necessarily merchandisers. Many times "they cannot see the 
possibilities of an item until they are shown. Our buyers have 
gone far enough many times actually to show manufacturers 
how they could revise their methods so as to increase their effi- 
ciency and make a larger output possible. The buyers know 
that unless they can make it possible for the manufacturer to 
get a fair profit, their source of supply is bound to be curtailed. 
Therefore, they work in the closest cooperation with the maker. 

As an example of this, they quote celluloid dolls which the war 
had made impossible to get in America, simply because no one 
over here knew how to make them. But the buyer who had 
previously purchased toys in Europe before the war had made 



82 CHAIN STORES 

such a close study of the subject that he was able to show Ameri- 
can manufacturers how to produce celluloid dolls which would 
retail at ten cents. 

Christmas tree ornaments were scarcely to be found anywhere 
the first years of the war. Again, the Woolworth buyer induced 
a manufacturer to try some experiments and as a result the Wool- 
worth organization sold millions of Christmas tree ornaments. 

Woolworth has been given as an example of the good results 
which can be obtained by close contact of the buyer with the 
manufacturer. But, as a matter of fact, the buyer of any chain 
has the same advantages open to him. He, too, can become 
acquainted with the manufacturers and, knowing as he does or 
should the demands of the public to which his organization 
caters, he can often make valuable suggestions to the manufac- 
turer. The buyer should remember that anything which helps 
the manufacturer to make more money will in the end result in 
a more satisfactory price to him. 

The Manufacturer and the Buyer. — We have shown how the 
buyer can work with the manufacturer with benefit to both. 
Now, in some cases the manufacturer can use the buyer to his 
advantage, that is, for sampling purposes. This is comparatively 
a new development and is confined to the five and ten cent 
stores. 

The manufacturer's object, as was mentioned previously, is 
to obtain as much publicity as possible for his product. The 
more he gets it before the public, the more publicity he will get 
and consequently his sales volume will mount up proportionately, 
always assuming his product is a good one. 

At one time, all manufacturers frowned upon the five and ten 
cent store. The latter's counters were bare of advertised goods. 
There has been, however, a marked change in the attitude of 
the manufacturers, and many of them are now as anxious as 
they were previously reluctant to do business with the chain 
stores. 

The reason is obvious. The large variety chains sell in alL 
parts of the country. They purchase in large quantities and 
as long as the article sells their patronage is steady. Of course, 
all articles cannot be used as samples, but it is surprising how 
many articles can be disposed of in this way, even at a profit. 



PURCHASING 83 

Before the war, Colgate & Co. sent a trial tube of their tooth 
! paste for six cents in stamps and kept a large force busy. They 
I did, however, put out a ten cent size when the government 
placed a stop on sampling during the war. A great many 
manufacturers with nationally advertised goods have followed 
their example. 

But the point is this : the buyer for the chain will not purchase 
articles of this kind unless there is a demand for them. The 
manufacturer cannot have his sampling done free. He must 
create a demand. The chain will not sell the article — the article 
must sell itself. 

Conclusions. — In the chapter on Purchasing Records, the 

reader will find a full discussion of procedure and practice in a 

typical purchasing problem. In the following chapter on the 

warehouse he will find a discussion of a subject which is so closely 

j connected with the purchasing problem in most chains as to be 

I almost inseparable. 

' This chapter has described the general aspects of the purchasing 

I problem in their broader phases. The constant trend of the 

I chains towards a more direct purchasing contact with the manu- 

[ facturer or other source of supply has been emphasized. This 

i purchasing economy is effectually summed up in the phrase 

' '^Centralized purchasing department and quantity buying.'' 

Cooperative buying associations have attempted to do the same 

j thing and their failure to secure the desired results leads to the 

I conclusion that not so much of the chain's efficiency as had been 

supposed was due to the purchasing. Purchasing is one of the 

essentials, but it is not the only one. 



CHAPTER VI 

THE WAREHOUSE 

Outline 
Its location. 

1. To form the hub of chain wheel of retail stores. 

2. Location with reference to probable future development. 

3. On transportation routes. 

(a) Rail. 
(6) Water, 
(c) Truck. 

4. Ease of access for deliveries. 
Size. 

1. Large enough to carry stock comfortably. 

2. Designed so that additions can be made easily. 
Construction. 

1. Number of floors. 

2. System of conveying articles. 

3. Miscellaneous considerations. 
The stock. 

1. Methods of arranging. 

(a) According to frequency of demand. 
(h) Weight. 

(c) Group class. 

(d) Alphabetical. 

2. Need for room. 

(a) In order to take frequent inventories. 
(6) To facilitate moving of stock. 

3. Desirability of putting old goods in front. 

(a) To avoid old goods. 

4. Desirability of placing heavy, bulky articles near exit. 

5. Importance of having regular place for all stock. 

(a) Facilitates handling by porters. 
The warehouse superintendent. 

1. Position. 

(a) Subordinate to purchasing agent. 

2. Duties. 

(a) Keep stock up-to-date. 

(b) Keep adequate reserve. 

1. Notify purchasing agent when stocks are low. 
84 



THE WAREHOUSE 85 

(c) Charge of personnel. 

1. Must see that orders are filled promptly. 
{d) In charge of goods in storage. 

1. Responsible for theft. 

2. Must see goods are checked properly. 
Deliveries. 

1. Medium of delivery. 

(a) Truck. 

1. Expense. 

2. Speed of delivery. 
(6) Horse. 

(c) Care of delivery trucks or wagons. 

2. Frequency of deliveries. 

(a) Dependent on 

1. Distance from member stores. 

2. Frequency of turnover in member stores. 

3. Storage capacity of member stores. 
{h) Desirability of having regular deliveries. 

3. Routing of deliveries. 

(a) Certain number of stores to each driver. 
{h) Should know time necessary to deliver for each truck. 
Filling requisitions. 

1. Requisites of warehouse clerk. 
(a) Knowledge of stock. 
(6) Knowledge of brands or sizes, 
(c) Knowledge of code numbers if employed. 
{d) Accuracy, 
(e) Speed. 



CHAPTER VI ; 

THE WAREHOUSE 

In the previous chapter we discussed the purchasing function, 
and in this chapter we treat the warehousing function. All 
goods purchased must ordinarily be stored at some central point 
preparatory to being distributed to the various retail outlets. 
For the ordinary retailer, this function is fulfilled by the jobber, 
but the chain, for various reasons, such as price economy, ade- 
quate deliveries, etc., takes this function upon itself. Thus, the 
warehouse becomes the focal center of the distributing system. 
Large national chains have several warehouses located at central 
points. 

Warehouses are in charge of an experienced warehouseman who 
sees to it that supplies are received, that lots are broken when 
necessary, graded, assembled, and shipped at appointed times or 
as soon after orders are received as possible. 

Warehouses operate on a maximum and minimum basis, inven- 
tory being kept by a modification or amplification of any one of 
the methods indicated elsewhere in the chapter. On the accuracy 
of these inventories and the manner in which they are kept up, 
not only does the efficiency of the purchasing depend, but also the 
ability to fill orders promptly as they come in from branch stores. 

The warehouse function may be divided as follows: 

1. It maintains an adequate and fresh stock of goods on hand at all 
times. 

2. It is so arranged that orders from stores can be filled and shipped out 
at maximum speed and with maximum accuracy. 

3. It must do this with the minimum expense for overhead. 

The Warehouse Location. — There is a right place and a wrong 
place, just as there is in the case of the retail store, to locate the 
warehouse. But the problem varies a great deal more in relation 
to the individual peculiarities of the chain. There are some 
general rules in this as inthe other phases of chain store operation. 

1. The warehouse should form the hub of the chain circle. 

86 



THE WAREHOUSE 87 

That IS, a chain is not really a chain in the sense that each branch 
store forms a link. It is more like a wheel with the warehouse at 
the center. This holds true whether the chain is national or 
local. A chain organized in the East may have to have ware- 
houses in San Francisco, Denver, Omaha, Minneapohs, Kansas 
City, New Orleans, Chicago, Atlanta, Detroit, Cincinnati, 
Cleveland, Buffalo, and Baltimore, as well as in New York and 
Philadelphia. In other words, there is a series of wheels scat- 
tered over the country. If the chain is local, the warehouse 
should be located as nearly as possible in the center of the 
member stores. This saves time and expense in deliveries to 
member stores. 

2. A chain warehouse should be located with an eye to the 
future. Where are the new stores going to be? Which way is 
population growing? These are only two of many of the 
questions which, in consideration, form a complex problem in 
commercial research. 

3. The warehouse must be located, if possible, on a railroad 
siding, where goods can be transferred directly from cars to the 
warehouse. 

4. The warehouse can be located to suit its own convenience 
and with a view to reducing overhead. It can be located, in 
other words, where rent is cheap. It must, however, be easy of 
access by road, so that trucks will find no interference going to 
and fro. 

The Size of the Warehouse. — The best plan in building a ware- 
house is to have a building large enough for all immediate needs 
and for requirements in the immediate future, and to have it 
designed so that additions can be put on inexpensively and rap- 
idly. This will avoid waste and, at the same time, provide for 
future developments. If possible, the experience of the following 
I chain should be avoided. 

The warehouse of the company in question, when built, ten 
years ago, was much too large, but at present it is too small. 
Consequently, various lines of canned goods have to be stored 
in the basements of some of the larger stores. This, as is readily 
seen, causes extra trouble. It is necessary to keep a storage 
record of these lots, and whenever anything is removed from any 
store basement, a requisition has to be filled out in the office, 



88 CHAIN STORES 

given to the truck driver who is to get the goods, and have the 
store manager check the goods and O.K. the requisition. Some 
goods, such as canned peas, may be left untouched until spring, 
when the carload that was originally put into the main warehouse 
has been sold off. Then they begin to draw in from the base- 
ments, a hundred cases at a time. 

It is a question whether the extra trouble involved in finding 
extra storage space does not offset, in great measure the economies 
effected by buying goods ahead in large quantities. 

Of course, the size of the warehouse depends a great deal on the 
goods sold by the chain and the number of stores supplied. A 
grocery warehouse would have to be much larger than a shoe 
warehouse or a haberdashery warehouse, and much more special- 
ized in tlie first and the last case. 

Arrangement of Stock in Warehouse. — There are several 
methods of arranging stock, according to frequency of demand, 
according to weight, according to group classification, etc. 
This is a matter for the warehouse superintendent to determine 
in accordance with the nature of the product. There are a few 
hints which it would be advisable to heed: 

1. Do not overcrowd the goods. They must be easy of access both for 
counting — necessary when goods are repriced and at other stated intervals — 
and for adding to or removal. 

2. Old goods should be in the front so that these may be used up first, 
thus ensuring a fresh supply of goods at all times. 

3. Heavy goods should be as near as possible to the place of loading to 
save effort in moving. 

4. Each article stocked should have a regular place, so that all confusion 
may be avoided. 

5. Goods must be checked on arriving and on leaving. For this reason, 
the checking desk should be near the loading platform. In some cases, 
where warehouses contain several floors, checking is done separately for 
each floor. 

Orderly arrangement of stock and efficient handling of it 
will reduce overhead and carrying charges. It will also guard 
against confusion in filling orders and in speeding up operations 
generally. / 

The Warehouse Manager. — The man in charge of the ware- 
house may be a rather important individual, or he may be a 
mere subordinate of the purchasing agent. In the smaller 



( 



THE WAREHOUSE 89 

chains, the purchasing agent has his office in the warehouse, 
and the control of warehousing problems is placed directly in 
his hands. 

But where the warehouse is placed at a distance, the warehouse 
manager has much responsibility. He must see that his stocks 
are kept up to date, and in sufficient reserve to fill all ordinary 
requirements. He must see that the central purchasing office is 
informed daily of the exact book inventory of the business, and 
he must see that orders for branch stores are ffiled promptly. 
It may be that some of the buying is done from the branch ware- 
house, such objects, for example, as are staple and the only 
saving in which comes from quantity purchases. 

The warehouse manager is responsible for checking goods as 
they come in and as they go out. His system should be made 
such that it would be practically impossible for employees to 
destroy or break open goods without the knowledge of the audit- 
ing department. He is also, of course, in charge of the warehouse 
^personnel, porters, checking clerks, billing clerks, and probably 
the delivery personnel, truck drivers, helpers, etc. 

Deliveries to Member Stores. — The problem of delivery comes 
•down to three factors: the medium of delivery, the frequency of 
jdeliveries necessary to stores, and the efficient routing of delivery 
service. 

The first question, whether delivery shall be made by truck 
|or horse, is a matter of cost to be decided by the chain manage- 
'ment. Some firms maintain horse delivery is cheaper for short 
;hauls and motor trucks for longer distances. The majority, 
however, use motor trucks. 

] The second factor, that of the frequency of deliveries to stores, 
depends on the turnover in the store, plus the storage capacity 
in that store. This will naturally vary among the several chain 
(branches. Some stores will require replenishing of stocks 
Idaily, some semi-weekly, and some weekly. This frequency can 
Ibe determined very quickly after short experience. 
! The routing is merely a matter of traffic, but it is claimed 
scientific management of truck deliveries will save considerable 
Itime and money. The traffic manager can ordinarily tell about 
[how long it will take to deliver at a certain distance from the 
.warehouse, and can arrange his routes accordingly. 



90 CHAIN STORES 

i^ Filling Requisitions. — When an order comes in to the ware- 
house, it must be filled as quickly as possible and with absolute 
Accuracy. The man performing this task must have complete 
knowledge of the stock, the sizes, the code numbers, the prices, 
etc. It is easy to imagine how accurate his knowledge must be 
in warehouses stocking a great variety of articles. In some cases 
|t may be desirable to have the order pass through several 
departments, in each of which a special clerk picks out the goods. 

In one haberdashery chain, a special conveyor on wheels is 
used which has been designed to carry the merchandise to and 
from all parts of the wareroom. It eliminates repeated handling 
of the goods, and allows the order from one store to be filled at 
one time and prevents any confusion of goods ordered for another 
store. These conveyors are wheeled to the charge desk, where 
gobds are packed for shipment to the stores. In this chain, after 
a shipment is charged and rechecked, it is passed along to a marker 
who' weighs, addresses, and marks out whatever receipts are 
necessary, such as, in the case of this chain, bills of lading and 
express receipts, while in the case of other chains it might simply 
be a driver's receipt. In this haberdashery chain there is a billing 
clerk who decides just what sort of case to use for each shipment. 
Using a case too large for the shipments sometimes make a differ- 
ence of forty cents in transportation charges. 
^ Requisition Blanks and Price Codes. — Requisition blanks may, 
if desired, be designed according to arrangement of stock in 
warehouse to make it easier to fill orders. It is most important, 
however, that they be so simple as to avoid all possibility of 
misconstruction. The requisition blank on which the store 
manager merely writes down a list of what he wants is not 
ordinarily efficient. 

If the warehouse is divided into several distinct departments, 
the store manager should be instructed to make out individual 
orders on each department of the central organization from which 
he is ordering supplies. This question is treated at length 
in a later chapter. It is only desired to show here that a simple 
fool-proof requisition blank is important from the warehouse end 
of the business. 

Some chains find it desirable to use codes for simphcity in 
ordering. Where there is a great variety of stock, this practice 



THE WAREHOUSE 91 

has much to recommend it, or where there is some arrangement 
according to departments. The following is a description of a^ 
code used in a men's furnishing chain: 

^^The code book is divided into sixteen departments, numbered con- 
secutively from 1 to 16. The derivation of the sequence of these 
numbers is the order in which they appear across the top of the daily 
report. That is: Silk shirts department No. 1; cotton shirts depart- 
ment No. 2, etc. In making up a number for an article, the first part 
of the number is the number of the department in which the article 
belongs, the second is an initial or two initials designating the article, 
and if there is more than one price for an article having the same initial 
it is designated by a numeral following the initial. That is, 'T indi- 
cates first price '2' second price, etc. As an example, let us take knitted 
neckwear. Neckwear is department 3. ^K' is used to indicate 'knitted' 
and '1-2-3-4' etc. to carry the price. In this case '1' means 50c, '2' 
means 65c '3' $1.00, and '4' $1.50, audit follows that knitted neckwear 
selling at $1.50 will be coded simply '3K4.' 

It goes without saying that code variations are numberless. 
Convenience and efl&ciency should be the sole criteria in deter- 
mining the use of such a short cut to ordering. 

The Perpetual Inventory. — Different plans may be used to 
keep inventory of stock in warehouses, but there is no disagree- 
ment on the fundamental point, that the inventory is the key- 
note of the whole structure. On it depends a large part of the 
eflftciency of the purchasing organization. The organization 
must know when it is getting low on this or that item, and how 
to avoid buying too much of something else. In a following 
chapter, an account is given of a model purchasing and inventory 
process. In this chapter, it is merely intended to indicate some 
of thie various methods of keeping inventory. 

The stock record card is the simplest form and the one ordi- 
narily most in use. For an illustration of such a card, see 
Fig. 30. This plan can be used for almost any type of chain. 
Cards may vary in size from 3X5 inches to 5 X 8 inches, 
according to the nature of the information which it is desired to 
include. Ordinarily, a separate card is used for each item. At 
the top of the card is listed the article, the manufacturer, and any 
other general information necessary. The body of the card is 



92 



CHAIN STORES 



arranged in accordance with the illustration, although any 
additional information desired may be added in extra columns. 
It is most important in all cases that these stock record cards be 
kept up to date, and for that purpose a special clerk should be 
delegated to enter receipts and withdrawals on the card. 

Some drug chains, handling from 60,000 to 90,000 articles, 
keep a book account for each article. Suppose this book is 
opened at random and we come to the statement for Amolin, 
2-oz. size. The page would appear as follows: 

Stock Record Book 
1922 



Article 


January 


February 


March 


April 


May 


Date 


Am't 


Date 


Am't 


Date 


Am't 


Date 


Am't 


Date 


Am't 


Amolin 2-oz, 


1 
8 

10 

16 

28 

31 


450 
137 


1 


153 
















323 
500 






823 
320 






503 
200 






303 
150 






153 





On the first of January there were 450 bottles on hand. The '^ 
eighth of January, 137 bottles were withdrawn for distribution to | 
retail outlets, leaving 323 in stock. On the tenth, an order of 
500 bottles came in, bringing the stock up to 823 bottles. On the 
sixteenth, the twenty-eighth, and the thirty-first, there were 
withdrawals, leaving the stock on hand at the end of the month, 
according to the book balance, 153 bottles. ^ 

At the end of each month a physical inventory is taken. In 
this case, the physical inventory corresponded with the book 
inventory, for there were, by actual count, 153 bottles on hand in 






THE WAREHOUSE 93 

the warehouse, on February first. Since there were 450 bottles 
in stock the first of January, and 500 bottles added during the 
month, sales for the month are obtained by subtracting the 
inventory for the first of February, that is, 153 from 950, leaving 
total sales of Amolin for the month of January at 797. 

Supplies are ordered, as mentioned before, in accordance 
with a maximum and minimum scale, that is, an amount is deter- 
mined under which it is unadvisable to go. In the same way, a 
maximum amount is determined. These warehouse maximums 
and minimums are constantly varying as the chain adds more 
units, or as seasonal variations affect sales of various products. 

A Special System. — Because of the special features which it 
contains and its adaptability to a chain warehouse holding any 
kind of product, a brief description of an inventory system pat- 
ented by Carl O. Williams, of the Acme Cash Basket Stores, 
Akron, Ohio, is included. 

For example, this system includes the following features: 

1. It allows one man to keep stock for an entire warehouse representing 
about 1,200 to 1,500 items. 

2. The management can know by 5 p.m. each evening just how much 
stock is left of any and all items. 

3. No matter how many orders go out during the day, only one entry 
is made in the stock record book. This saves time and work in fingering 
the pages, saves paper, and avoids the danger of error. Since but one 
entry and one subtraction is made daily, there is less chance of error than 
if thirty or fifty entries and subtractions were made. In spite of the 
apparently large duties of the stock clerk, he has no need of hurrying or 
rushing through his work. 

Briefly, there is a stock record book for each floor of the 
warehouse. On each floor is an arrangement like a postoffice 
file, containing as many pigeon holes as there are items on the 
floor. These holes are narrow, about ^ of an inch being wide 
enough. They are arranged in the same alphabetical order as the 
pages in the stock record book. 

Figure 8 shows a page from the stock record book, arranged 
for a grocery warehouse. The arrangement can be altered to 
suit any type of business which requires a warehouse. Entries 
are made on this page but once daily as will be explained. 



94 



CHAIN STORES 















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THE WAREHOUSE 95 

All outgoing orders are recorded by the stock record clerk. 
Suppose he sent out 

1 Case Capstan Peas 
3 20-oz. mop heads 
1 half barrel glucose 
20 lbs. lentils 

He picks up a ^^one case^^ card and slides it into the slot under 
Capstan Peas. There is another color card for one or two 
of any special item, and he inserts the color card for ^^3^' in 
the 20-oz. mop head slot. A similar card with a '^1^' on it goes 
into the half-barrel glucose slot. There is another color for 
^^ pounds'' and the lentils are taken care of by a card of that 
color and bearing the number 20. 

At the close of the day the stock clerk runs through his file 
of cards for the day. In the Capstan Pea slot, for example, 
are a number of colored cards which total 24 3^^ dozen cases 
for the day. The clerk turns to the Capstan Pea page and 
records down 24 3^^ dozen cases, subtracting this from the total 
in stock and bringing down the balance. 

The stock clerk notifies the buyer when any item in stock 
is nearing the minimum. He makes up a little card containing 
the following information. 

Name of item 

From whom purchased 

Date and amount of last purchase 

Price of last purchase 

Average monthly consumption 

Stock on hand 

Every day the stock clerk verifies about ten items on one 
floor of the warehouse and corrects the figures in the book. 
A perpetual inventory needs constant checking up, no matter how 
good it is, as mistakes are bound to occur. 

Conclusions. — We have by no means exhausted the variety of 
inventory systems which various chains employ. Nothing has 
been said about the replica of the main store, counter for counter, 
which is maintained by some five and ten cent stores as a store 
warehouse. All these variations require different handling of 
records and routine. It is appreciated that wherever records are 



96 CHAIN STORES 

concerned, it is exceedingly difficult to obtain an accurate idea 
of order and sequence unless one particular system is taken, 
and the process followed through from beginning to end. For 
this reason, Chap. XVI is devoted to purchasing and ware- 
housing records as employed in one chain. 

The theory of warehousing can be readily summed up: 

1. A warehouse building large enough to contain sufficient 
stock and conveniently located in relation to retail outlets. 

2. A system of records which will keep the buyer constantly 
and accurately informed of stock on hand at any moment. 



CHAPTER VII 

THE SALES PROBLEM 

Outline 

Seasonal. 

1. Stimulus to retail selling by 

(a) Holidays. 

1. Christmas. 

2. Easter. 

2. Necessity of preparations 

(a) To distribute sales. 

3. Sales records as bases of predicting seasonal volume 

(a) For entire organization. 
(6) For individual stores. 
Daily. 

1. Importance of Saturday. 

2. Influence of weather. 

(a) Rain. 

(h) Excessive heat or cold. 
Business conditions. 

1. Ability of chain stores to weather financial stress. 

2. Business of chains dealing in necessities actually better in periods of 

economic depression. 
The product. 

1. Characteristics. 

(a) A necessity or semi-necessity. 
(h) Turns over rapidly, 
(c) Portable. 

2. Number. 

(a) Large variety. 

(6) Standard sizes only. 

1. Extra large and extra small avoided. 

2. Sizes most commonly required, 
(c) Standard styles. 

3. Quality. 

(a) Necessity of uniformity. 

4. Trend towards packaged goods. 
Merchandising policies. 

1. Display. 

(a) Window trims. 
7 97 



98 CHAIN STORES 

(b) Counter displays. 

(c) Shelf displays. 

2. Cut price sales. 

(a) Loss leaders or weekly-specials. 

(b) One cent sales. 

3. Seasonal sales. 

(a) Small necessity of 

4. Novelty sales or selling ideas. 

(a) Cooperative merchandising campaigns. 

5. Premiums and trading stamps. 



CHAPTER VII 
THE SALES PROBLEM 

All chain store problems are affected by the question of sales, 
for a chain store organization is essentially a highly organized 
retail selling machine. The purchasing agent, before any pur- 
chasing is done, must know the rate at which goods can be sold. 
Furthermore, the nature of his purchases must be regulated by 
the buying desires of the public. The personnel, the store mana- 
gers, the clerks, the supervisors, etc., are all people who have 
been trained in the art of selling. All efforts made to maintain 
morale have been made with the intent of increasing sales. 

In this chapter three phases of the sales problem are discussed : 

1. Causes which lead to fluctuations in sales, either regular or irregular, 
over periods of time. 

2. The general nature of products sold in chain stores. 

3. Various merchandising plans and policies. 

In general, the laws of merchandising which apply to any 
retail selling organization apply to chain stores, with the excep- 
tion that national chains have a great many problems due to 
their broad distribution that do not come up in handling an 
independent business or even a small local chain. For example, 
it is quite evident that the tastes of one community will not 
coincide exactly with the tastes of another, nor can any efforts 
on the part of the clerks offset this community antagonism to 
particular products. On this point the standardized policy of 
the chain must give way. 

As far as possible, conditions applying to the majority of 
chains are used. But each chain has to face these conditions 
in different ways. 

Seasonal Fluctuations. — Chain store organizations, as almost 
every other merchandising activity, are affected by seasonal 
trends. Christmas is an almost universal stimulant to every 
business. The summer is apt to mark a falling off in most lines. 

99 



100 



CHAIN STORES 



Every different product has its off seasons. Seasonal activities 
are regular iji occurrence as differentiated from periods of pros- 
perity and depression which alternate at infrequent intervals. 
For purposes of illustration the monthly sales of the F. W. 
Woolworth Co. for 1918-1921 have been taken. The sales of 
this company serve well as an example because the five and ten 

























































































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1919 


1920 


1921 




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1921 1920 1919 1918 
January, $8,336,208 $8,491,203 $7,127,859 $5,921,295 
February, 9,138,262 8,172,381 7,197,271 6,294,900 - 
March, 11,830,973 10,852,951 9,121,342 8,712.378 




5 












































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y. 11,202,722 11,320,849 9,924.491 8.331.101 
e. 10,740.760 10,817.985 8,549,958 8,690,227- 
^ 10,744,282 11,282,810 8,717.793 8,608,142 




3 










































Jun 
Jul: 




2 










































September, 11.326.709 10.954,363 9,048,854 8,768,774 
October. 14,406,922 13,242,233' 10.742,643 9,331,380^ 
November. 13,fD9,603 12,427,566 10,985,136 10,094,984 
December 24i, 155.400 21 521 798 19 374 740 15 422 146 t-^ 




1 






















































































Total. 14-7,592,892140.910.267 119.501.009 107.179.414 , 



Fig. 9.— Monthly sales of F. W. Woolworth Company, 1918-1921. 



cent store business is not one primarily affected by good times 
or hard times. This factor has but slight significance in deter- 
mining volume of sales. 

Glancing at Fig. 9, it is apparent immediately that each 
Christmas brings a great peak of business activity. The month 
of December alone doubles the average sale of any of the 
preceding 11 months. One point of value is at once evident. 
The company must prepare in advance for this inrush of business, 



THE SALES PROBLEM 



101 



and from its records it 
can forecast with fair 
certainty the volume of 
sales in each particular 
store. 

Looking further, 
another peak is seen in 
March or in April, a 
much lesser peak but 
still appreciable, and 
this can be attributed 
to Easter sales. There 
is a drop in late sum- 
mer reflecting vacation 
times, and thereafter 
business is fairly good 
until the Christmas 
rush suddenly doubles 
sales. January and 
February bring the 
lowest ebb of the year's 
business. The experi- 
ence of the Woolworth 
chain is not unique. 
The other five and ten 
cent store chains experi- 
ence the same seasonal 
trends. 

What is shown so 
clearly by the Wool- 
worth case is applied 
more generally in Fig. 
10, comparing a num- 
ber of chain stores with 
each other and with 
department stores, 
apparel stores, and 
mail order houses. 
Chain groceries show 



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CHAIN DRUGS 

1 1 1 



















1919 192.0 \9Z\ 

Fig. 10. — Comparison of seasonal trends (chart 
prepared by Federal Reserve Bank of New 
York). 



102 



CHAIN STORES 



the least seasonal peaks with chain drugs reflecting only 
Christmas activity. Chain cigar stores and chain dry goods 
have decided seasonal peaks. In the case of the drygoods 
chains there is a distinct mid-summer reaction. 

Figure 11 is a composite chart of retail activities averaged 
over 1919, 1920 and 1921. This shows plainly the falling off in 
January and February, the recovery lasting until the end of 



AVERAGE 
8.3" 




JAN. FEB. MAR. APR. MAY JUNE JULY AUG. 6EPI XT NOV* D££^ 



Fig. 11. — How retail sales vary with the seasons (chart prepared by Federal 
Reserve Bank of New York). 

June, the summer apathy and the fall rise culminating at Christ- 
mas time. 

The United Cigar Stores Co. has spent a great deal of time and 
thought on the seasonal problem and has done much towards 
distributing the seasonal peaks. For example, its executives 
realized that in the holiday season the stores would be overcrowded 
and many sales lost, unless some means were taken to spread the 
sales out over a few weeks prior to the actual event. As it is 
against the policy of the chain to feature cut-price sales, unusual 
offers are made, such as including extra articles for the same price, 
and these offers are made some time before Christmas. 



THE SALES PROBLEM 103 

In January and February tobacco sales are poor. In addition 
to the post-holiday apathy, there is the fact that smokers do 
not enjoy smoking out-of-doors in very cold weather. Also, 
many are consuming the cigars given them for Christmas. Thus 
special sales are again resorted to. One year every purchaser 
of a pipe was given one half the amount of his purchase in any- 
thing in the store. The company figured that these special 
sales gave enough news value in advertising to pay the actual 
falling-off in profits. 

What has been done by this company can also be done else- 
where. With the records of sales for previous years as a basis, 
some scheme can be worked out for distributing seasonal 
congestion, and perhaps bringing up sales in off-seasons. 

Daily Fluctuations. — It is not only possible to forecast monthly 
sales by a careful study of records, but daily sales as well. Some 
days in the week are far better for business purposes than others. 
For example, the Great Atlantic & Pacific Tea Co. does half the 
total business of the company on Fridays and Saturdays. To a 
great extent the same is true of the five- and ten-cent store chains. 
Officials of F. W. Woolworth Co. point out that sales on Saturday 
are usually $800,000, or equal to the business of two days during 
the week. 

Daily sales cannot, however, be forecasted with such accuracy 
as monthly sales, because other factors enter the equation. 
For example, few people shop in very stormy weather, or very 
hot or very cold weather. Weather extremes discourage retail 
sales activity. 

Where a chain deals in perishable goods this element of 
uncertainty is important. Mort Hamburger, Sales Promotion 
and Advertising Manager of the Federal System of Bakeries of 
America, Inc., says: ^^In any retail bakery business there is 
always the element of what we have termed ^day-old bread.' 
The ideal situation in the Federal Bakery is to sell out the day's 
output of bread. Certain kinds of pastries can be carried over 
without losing their flavor or taste and are just as palatable the 
second day as the first. Practically every Federal Bakery has an 
unusually heavy bake Friday nights in order to have sufficient 
supply of merchandise saleable for Saturday, and hence it is 
necessary to carry not only cakes and pastries, but extra bread.'' 



104 CHAIN STORES 

As far as regulating the production of baked goods in Federal 
shops is concerned, this is left entirely to the judgment of the 
manager. In the cash-and-carry business it is difficult to judge 
to the very loaf just how large a quantity should be baked. After 
all is said and done, the element of production is the one problem 
in the bakery business that cannot be solved accurately. 

A sudden down-pour of rain, or an unusually cold or warm 
day, will have a marked effect on the cash-and-carry business, 
and managers are at all times on the lookout for these hazardous 
days. Every manager in the Federal System gets a daily report 
on the weather and is guided accordingly when ordering his 
bake. If, for instance, on a Friday night the manager gets a 
report from the Weather Bureau to the effect that Saturday 
will be a cold, rainy day, he will cut down his production a little 
bit so as to avoid the possibility of discards. 

Although the weather may be the cause of decreasing some 
sales, the chain drug store which carries umbrellas will find 
a sudden increase in sales, the chain shoe store will double its 
sales of rubbers, etc. 

Business Conditions. — Apart from any seasonal, daily, or 
climatic influences on sales, chain store organizations are subject 
to the general effects of business prosperity and depression. 
This is very unequally distributed in its action, largely due to 
the nature of the product, the successful purchasing policy of 
the chain, the wisdom of the management in foreseeing condi- 
tions, etc. 

The five- and ten-cent store suffers little from business depres- 
sion. The Woolworth sales chart readily shows that the business 
depression of 1920-1921 failed to retard to any marked degree 
the healthy growth of the chain. In fact, it is true that in hard 
times more people patronize the five- and ten-cent stores than in 
good times. In a grocery chain, normally dealing in low-priced 
staple articles, business depression also has but a slight hold. 

The Product. — What sort of goods can be sold in chain stores? 
At first thought it would seem almost everything. It is not 
limited to tangible products but can be extended to intangible^ 
products such as a chain of theatres, hotels, and shoe repair 
shops. Now, are there are rules which can be applied to the 
choice of products possible to sell through retail chains? Theo- 



THE SALES PROBLEM 105 

retically the answer would be ^^No/' but no system has yet been 
evolved which makes possible a successful chain for retailing 
some products There may be isolated examples of small chains, 
but there are no great chains of jewelry stores or furniture stores. 
Thus there must be some general principles which govern the 
products sold in chain stores. 

1. The more rapid the turnover, the more adapted the product is for 
chain store retailing. A well-known brand of cigarettes, turning once a 
week, is better than a line of cut glass turning once a year. Slow turn- 
over means large overhead expenses which means failure in efficient chain 
store operation. 

2. The product should preferably be a necessity or a semi-necessity. 
The chain store must have constant patronage. It must be able to predict 
its purchasing requirements. Demand for luxuries is uncertain and the 
larger profit cannot offset this uncertainty. 

3. The article should be portable. Since most chain stores are cash- 
and-carry retail outlets, the easier the article is to wrap up and take away, 
the more sales can be made. 

4. The product should be such as to permit centralized and standardized 
executive control. 

The fact that a product is merchandised successfully through 
chain stores without fulfilling all these requirements does not 
prevent these rules from general application. 

The Number of Products. — A chain store may carry a larger 
variety or a smaller variety of goods than its independent com- 
petitor. In a grocery chain the number is usually smaller. 
The Kroger Grocery & Baking Co. usually carries not more than 
400 brands in place of 900 to 1,000 carried by the independent 
grocery. The reason here is that the chain store carries only 
groceries which turn over rapidly. No brands of questionable 
reputation are stocked. No goods for which there is little call 
are allowed to take up valuable space on the shelves. The 
Piggly Wiggly Co.\s stores are necessarily, because of the self- 
service idea, restricted in products to the best known brands. 
This policy allows concentration on a few lines. 

The case of the drug store is the reverse. The large chain 
store is likely to have a much larger variety of products, due to 
its great merchandising power. The chain drug store, usually 
located in very advantageous city sites, can often stage a special 



106 CHAIN STORES 

sale and complete it in one day by means of newspaper adver- 
tising, a proceeding outside the reach of the independent druggist. 

The stock problem of the five- and ten-cent store is a difficult 
one. Professor Duncan in his book ^^ Marketing, Its Problems 
and Methods, ^^ states that 92 per cent, of the stock of such a store 
is made up of every day necessities, four per cent, luxuries, candy 
and jewelry novelties two per cent., and fads and souvenirs two 
per cent. more. In addition there is always an opportunity 
for trying out experimental goods. Some five- and ten-cent 
stores take on as many as 48 different lines of goods, including 
groceries, automotive parts, etc., and with such appurte- 
nances as a flower department, a photograph gallery, a soda 
fountain, and a restaurant. It is claimed that the limit of 
expansion has been reached in the variety field, and that further 
extension of lines carried must be reached by raising the price 
limit. In support of this argument, it is noteworthy that, with 
the exception of Woolworth, the other five- and ten-cent store 
chains have raised their price limit while retaining the selling i| 
advantage contained in the name five- and ten-cent store. 

The United Cigar Stores Co. claims to have deviated in but 
two respects from its original policy, and one of these deviations 
was to take on the retailing of sundry merchandise such as candy, 
chewing gum, safety razors, playing cards, etc. Several mem- 
bers of the organization were averse to taking on lines which 
would, in their opinion, detract from the individuality of the store 
and render a clerk trained to sell only tobacco products less 
efficient when he had other things to sell as well. As a com- 
promise, at first only goods were taken on which did not require 
to be sold, but only put on display. Then other articles were 
tried out. Pencils, handkerchiefs, and books were not par- 
ticularly successful, but chewing gum was an immediate success. 
Candy was sold in packaged form. At one time a bulky glass 
jar was introduced for use at home for holding cigars and 
sales surpassed all expectations, the jars being carried off in 
thousands. 

When the United Retail Candy Stores Co. started in business^, 
it was feared that sales of candy in the cigar stores would imme- 
diately fall off, but, on the contrary, no effect has been observed. 
A cigar store is an excellent place for retailing candy as a side 



THE SALES PROBLEM 107 

line, because approximately 80 per cent, of all candy sales arc 
made to men. 

Nximber of Lines. — The policy of pleasing the public extends 
logically to the number of lines carried, and even to the sizes in 
particular lines. The manufacturer's great problem in selling the 
chain stores is to create a demand for his product among the 
public. If any missionary work i& to be done by the chains, they 
do it in behalf of their own products and private brands. Manu- 
facturer's goods must sell themselves. 

Grocery stores ordinarily limit the number of sizes of a par- 
ticular line in stock. Extra large packages are avoided both 
because of the difficulty in carrying away and because there 
is comparatively little demand for them. A customer will 
usually take two of the smaller size if she desires a considerable 
quantity. 

The Dotson-Kerwin stores, in Iowa, have an ingenious method 
whereby a stock of odd sizes sufficient for one store is made to do 
for five, and by this method makes it possible to secure a large 
enough turnover of these odd lines to warrant carrying them. 
The company has five stores, in Waterloo, Independence, Oel- 
wein, Vinton, and Cedar Falls. Although Waterloo is about 
four times the size of the other towns, all stores are stocked 
uniformly as to variety and grade. The size of the stock varies, 
of course, with the demand. ^^Off sizes," says an article in the 
Chicago Apparel Gazette, ^^are carried by each store, and each 
store keeps a list of odd sizes and patterns carried by the other 
stores.'' As the stores are all within a radius of 30 miles, when- 
ever a customer asks for an odd size and it is not in stock, 
the clerk looks it up in the card file and in a few moments 
has telephoned and is assuring the customer he can get it that 
afternoon. 

As a general rule, however, chain stores do not and should 
not attempt to carry anything but standard sizes and lines. 

Quality. — It is a peculiarity of human nature that, whatever 
price is charged for an article, the customer expects good quality. 
No chain store can afford to sell inferior goods. Like the attitude 
of the clerk, the quality of the articles offered reacts on sales in all 
the other stores of the chain. Grocery chains ordinarily make 
a practice of inspecting all goods at the warehouse and exercising 



I' 



108 CHAIN STORES 

the most careful supervision over standardization of quality 
under brand names. 

Enough has already been said about the necessity for turnover 
and fresh stock, under the head of purchasing. Quality goods are 
necessarily fresh and not left-overs. No chain store organization 
should try experiments with the quality of its products. The 
best for the price is none too good. 

Packaged Goods. — Wherever possible, chain stores prefer to 
sell packaged goods. The grocery chains and the drug chains are 
the outstanding examples of this tendency. At one time the 
grocer measured out ten pounds of sugar and five pounds of corn 
meal, etc. Now he simply hands over the counter a neat package 
all done up. Packaged goods are another move towards effi- 
ciency since they eliminate a great deal of time spent in preparing 
bulk articles for a customer. In many cases, a clerk could wait 
on two or three customers while measuring and doing up parcels 
of bulk articles for one customer. Recently one large chain . 
store grocery did away with all its coffee-grinders, confining sales | 
of coffee to packaged goods. 

Where chain stores do carry bulk articles, it is a wise practice 
to have clerks get standard weights wrapped up and ready 
in their spare moments, so that no time will be lost in making 
sales. 

The Place of the Product in Chain Store Merchandising.— 
The product plays a larger part in chain store merchandising 
than in the merchandising policies of a single, independent store, 
because chain stores depend so much on display, on the appeal 
of the article to the eye of the consumer. In the five- and ten- 
cent store the product must virtually sell itself. The policy of 
substitution has almost died out and the chain store customer 
may be sure of getting what he wants. 

The merchandising plans and policies of chain store organi- 
zations are not build around service, nor exclusiveness of trade, 
but solely around the product. In many cases it may be the 
price of the product. Probably in the majority of cases price will 
be the basis upon which the merchandising policies are formu- 
lated. But some chains emphasize the quality of the product. 
The more necessary an article to the consumer, the less sales 
effort is required to dispose of it. It becomes a question of sell- 



THE SALES PROBLEM 109 

ing a number of staple articles to the consumer by efficient 
display, seconded by other selling methods. 

Chain store organizations have certain settled merchandising 
policies, some of which are inseparably connected with the chain 
idea, and other of which are elaborations of ordinary retail 
selling methods. For example 

1. Efficient display. 

(a) Window trims. 

(b) Counter displays. 

(c) Shelf display of product. 

2. Cut price sales. 

(a) Loss leaders. 
(h) One-cent sales. 

3. Seasonal sales. 

4. Special novelty sales. 

5. Premiums and trading stamps, etc. 

The first point has been treated at length in the chapter 
on the member store. 

The theory of pricing will be discussed in the following chapter. 
The point to be brought up here is the effect of pricing as a sales 
appeal. '^ All people want to make a good bargain. Let them!^' 
said Frank W. Woolworth, and he proceeded to base his whole 
merchandising campaign on a display of goods at the lowest 
possible prices. 

Many chains have a fixed policy of featuring each week a 
so-called ^Moss leader.'' That is, some well known article, the 
price of which is usually standard and known to the majority of 
purchasers, is put on sale at actual cost to the chain or even at 
a slight loss. This is done on the theory, which works out in 
practice, that people will be attracted to this bargain and will 
buy other goods as well. 

Loss leaders are often termed '^weekly specials.'' One chain 
says: *^Our business was built up on the idea of weekly specials. 
Every week we cut the price of about twenty items in the store 
and sell them, for that week only, at what amounts to almost 
a wholesale price. ^'Many other chain stores follow this idea 
with their own variations. 

The ^^ One-cent" sale, so highly and successively featured 
by the Liggett stores, is one of the variations of this loss leader 



110 CHAIN STORES 

idea, very ingeniously carried out. At first glance, it actually 
appears as if the drug store were taking a terrific loss. Tb 
explanation, however, is simple. 

The person in charge of organizing the sale makes a list of 
long-price articles, that is articles the cost to the store of which 
is quite low compared with the selling price. Suppose, for 
example, that an article cost 10 cents and retailed for 25 cents. 
This leaves a gross profit to the store of 60 per cent. Now sup- 
pose a 1 cent sale is announced, that is, a purchaser can obtain 
two of these articles for the price of one. By paying 26 cents, 
the customer can procure two packages of the 25-cent size. One 
article is sold for 25 cents and the other for one cent. If the aver- 
age cost of doing business is 20 per cent, no money is actually lost 
on the sale. By increasing the turnover, the expense of operation 
is reduced. 

Seasonal Sales. — Generally speaking, the chain stores make 
much less use of the season as an excuse for staging special sales 
than regular independent organizations. The reasons are 
obvious. The chain store, with its larger turnover, its more 
efficient purchasing organizations, and its wide distribution, is 
able to sell its goods as they come in. Chains, like Penney, 
which make a rule never to buy ahead, naturally never have 
seasonal cut-price sales. 

Grocery chains often have a canned goods sale, but these are 
rather in the nature of loss leaders than genuine seasonal clearing 
out of stock. Chain shoe stores, like any other shoe store, 
have seasonal sales, but often this is due to the large number of 
manufacturers' chains included among the chain shoe retailers. 

The .average chain considers it more profitable to estimate 
seasonal demands closely enough so that there will be no large 
surplus of left-overs, with overhead expenses of storage and sales 
losses. 

Special Novelty Sales. — Originality in selling methods always 
attracts the public. Feature sales are always popular with firms 
which advertise. It gives them something to talk about and 
explain. Novelty in window display is another method. But 
new selling ideas pay better than any other method. 

President Ralph B. Wattley of the National Drug Stores 
says his ideas were founded on what he himself would like to 



1 



THE SALES PROBLEM 111 

find on entering a chain store. One of the first things he did was 
to bring the prescription counters out in plain sight instead 
of keeping them in the rear according to traditional drug store 
practice. (See Fig. 12.) Then he formulated the policy of selling 
all prescriptions at cost, the company even going so far as to 
carry part of the cost. This was like offering the public some- 
thing in the nature of a perpetual loss leader with a reduction of 
something like 50 per cent, to the public. This was a new idea 
and quite opposite to the trend in some drug chains to minimize 
the prescription business or even concentrate it in a few stores. 

One day he observed a man who was rushing from one counter 
to another in the endeavor to make up a list of purchases. This 
man was evidently in a great hurry and was much inconvenienced 
by the fact that he had to go from counter to counter to make 
his purchases. President Wattley immediately conceived the 
idea of a men's department, carrying all the small articles a man 
would be likely to purchase. It would contain everything from 
razor blades to poker chips. 

The Federal System of Bakeries occasionally features a 
novelty product. They originated a name for a slightly different 
product such as Priscilla Cake, Oliver Twist, the Longfellow 
Loaf, Tokio, and Honey Boys. Generally speaking, these names 
convey little of the nature of the product. To each product 
one solid week of selling effort is devoted and to this end all 
merchandising policies are bent. In Tokio week, for example, 
the following merchandising plan was followed : 

1. The product — a poppy seed loaf of bread with shghtly different shape. 

2. The advance window paster ''teaser." 

3. The window displays. 

4. The inside store displays. 

5. Advertising and publicity. 

6. Sales caps for the sales girls. 

It should be stated that previous to putting on the complete 
sales campaign, the detail had been carefully worked out in 
several cities on a test-campaign basis. 

During the Tokio week, sales of Tokio bread averaged 4.2 
per cent: of total sales, two stores going over 11 per cent. As a 
method of stimulating sales and gaining publicity it was a distinct 
success because of the carefully planned campaign. 



CHAIN STORES 




THE SALES PROBLEM 113 

Cooperative Mechandising Campaigns. — There has been a 
movement of recent years by manufacturers to cooperate with 
retailers in staging sales campaigns. This is but another phase 
of the trend towards more direct distribution, but it deserves 
close watching in the future. 

The Sun-Maid Raisin Co., which recently ceased distribution 
through jobbers, cooperated with the Federal System of Bakeries 
in putting on a Sun-Maid raisin week. Since many of the 
bakery ^s products were naturally made with raisins, any increased 
sales would accrue both to the benefit of the manufacturer and the 
chain. The following analysis of results accomplished by retail 
units during the Sun-Maid week is interesting as showing what 
such cooperation will effect. 

Average sale for raisin bread three weeks prior to 

Raisin Week $19 . 66 

Average sale raisin bread during Raisin Week 26 . 03 

Average sale two weeks following 20 . 94 

This meant that, during Raisin Week, sales of raisin bread 
increased 323-^ per cent. Although sales afterwards fell off, there 
was a net gain of 63--^ per cent. 

Chain organizations with manufactured products of their own 
normally prefer to feature such products, but there are undoubt- 
edly possibilities in the idea which have not yet been fully 
exploited. 

Premiums and Trading Stamps. — The premium department 
of the United Cigar Stores Company is one of the features of the 
company. The policy of giving premiums was initiated when 
this company first started in business. A special company was 
formed to take hold and expand the premium end of the business. 
Originally the list of articles given away in return for premiums 
was chiefly made up of articles which men ordinarily liked, 
but it was soon found that silk stockings and other articles for 
women assumed marked importance and the premium list was 
accordingly enlarged. 

The clerk is instructed to place the certificate in the consumer's 
hand. Otherwise not half of them would be taken. The 
premium department buys all merchandise at half the price 
the consumer would have to pay and it gives these premiums as 

8 



114 CHAIN STORES 

an inducement for the customer's trade. By buying at the 
United Cigar Stores, in other words, and saving up the coupons, 
the customer can redeem these coupons for articles at virtually 
wholesale prices. 

Cost is figured on a 100 per cent, redemption basis, and is taken 
care of by profits from increased sales. Of course, there is never 
a 100 per cent, redemption. In one year the United Cigar Stores 
had 86%^ per cent, of its premiums redeemed, a figure remarkably 
high. When redemption percentage is low, profits are left 
with which to start new premium stations, pay clerks, etc. 

Some chains use trading stamps as a drawing card for customers, 
but the practice has never become very wide spread. Premiums 
and trading stamps are both forms of service which, in particular 
cases, it is found profitable to give because of the increased sales 
resulting from them, and the consequently increased profits 
to take care of the increased cost. 

Conclusions. — The sales problem is the great problem in chain 
store retailing. All others are subordinated. Without volume 
of sales there can be- no success, because the narrow margin of 
profit absolutely deman,ds this volume. Thus the first principle 
of sales is to find out what the public wants. The owner of one 
small drug chain installed a want book and noted down every- 
thing asked for in his drug stores, from hair nets to piano strings. 
In this way he was led to stock tennis and golf supplies, fishing 
tackle, baseball goods, bathing suits, fountain pens, alarm clocks, 
and scissors. He was able to sell this heterogeneous collection 
of goods because his public wanted them. 

Public taste changes rapidly. One grocery chain noticed that 
sales of black tea were increasing. Several lines of green tea 
were immediately dropped and the black tea pushed. The 
result was that in three months sales of black tea were exactly 
doubled. 

Control of sales lies naturally through careful records and 
accounting, but the increase of sales comes from careful watching 
of these records, plus sales ideas. When these sales ideas are 
embodied in merchandising plans, tested in advance for their 
practicality, increased sales must result. 



CHAPTER VIII 
COMPETITION 

Outline 

The question of the independent retailer. / 

1. The permanence of his position, 
(a) Due to 

1. Various forms of service. 

2. Special quality goods. 

3. Carrying goods for which there is small demand and 

consequently low rate of turnover. 
(h) Caters to wealthy trade which can afford to pay for extra 

service. 
(c) Impossibility of competing with chain store on basis of price. 
Competition of chain with chain. 

1. Impossibility of chain monopoly. 

(a) Deals in staples. 

1. Sources not possible to corner. 

2. Too high a price charged by one chain would mean develop- 

ment of new chains. 

2. The trend towards combination of chain with chain. 

(a) Caused by 

1. Increased economy of operation 
(a) In purchasing. 
(h) In decreased overhead. 
(6) Theory of growth. 

1. The larger the number of member stores, the larger the 
sales per unit store. 
Private versus advertised brands. 

1. Chain store policy. 

(a) Sell what the public demands. 
(h) Simplify stock as far as possible. 

2. Value of private brand to chain. 

{a) Increased profits. 

(b) Advertising value to store. 

(c) Avoids price disputes with manufacturers. 

3. Substitution. 

(a) Small extent of the practice. 
(6) Effect of ''own goods" bonus. 

115 



IK) CHAIN STOIiJ^JS 

Bases of chain store competition. 



1. 

2. 
3. 


A(!counting. 

Display. 

(goodwill 


4. 


(a) Of public. 

(b) Of eruployccs. 
Location. 


5. 
(). 


Management, 
l^ersonnel. 


7. 


Price. 


8. 


Pun^hasing. 


9. 


Sales p()li(4es. 


10. 


Turnover. 



» 



CHAPTER VIII 
COMPETITION 

Competition in the chain store field is definitely divided into 
two sections, first that between the chain store and the independ- 
ent store, and second, that between the chain store and the chain 
store. The first type of competition is the one most talked of, 
while the second is the one that matters most to the chain organi- 
zation. A chain expert on locations can tell after an analysis 
whether the community can support one of his stores, and the 
chain store will be sure of a certain amount of trade based on 
its location and its price appeal. 

There has been very little unpartisan discussion of the question 
of chain store competition. In the months just prior to the 
war there was much talk and some outcry against chain policies 
by those independents who were unable to meet chain prices. 
When the war brought almost universal business prosperity, 
money was made so easily that the phenomenal strides made by 
the chains in expansion programs passed almost unnoticed. The 
result is that now the lines are fairly drawn. Each town and city 
supports a certain quota of chain grocery stores. Other chains 
are close behind. These chains obtain a certain percentage of 
the trade, namely that percentage which is willing to pay cash and 
do without deliveries. Although for some years past the trend 
has been towards ^^cash-and-carry" chains, it is quite likely that 
in the sharper competition of the future some chains may offer 
delivery as a special inducement. Several grocery chains, in 
fact, are offering this service at present. 

Many independent retailers have held the chain in such dread 
that they have been willing to sell out on the mere invasion of 
the chain store in their territory. Others are so narrow-minded 
as to close their eyes or turn them the other way when they pass 
a competing chain store. This deep-seated antagonism on the 
part of the independent retailer has done him great harm. He 
has indulged his natural tendency of avoiding pushing branded 

117 



118 CHAIN STORES 



^ 



goods which chain stores carry in order to avoid the almost 
inevitable price comparison. 

The present situation is that the chains take a certain class of 
trade and the independents another, namely, the class of trade 
with money which prefers the personal service and trouble which 
only the independent retailer can give. In return this class 
is willing to pay an extra amount. 

The Position of the Independent Retailer. — Will the small 
retailer ever go out of business? 

As far as any definite answer can be given, it is ^^No!^' The 
small retailer can obtain a hold on a certain section of the public 
through forms of service, square dealing, courtesy, handling low- 
turnover goods in small demand which some of his customers 
wish, and by carrying an extra good line of something else as an 
added attraction. 

Many people who go to a grocery store do not like to ex- 
periment and they wish someone to choose for them. If they 
know a certain retailer will send them good fresh lettuce, fruits, 
and vegetables, they will buy there and pay the extra price. It 
is the same point which nationally advertised goods are hammer- 
ing home all the time. ^^ Don't experiment! Our goods are 
always the same. The other fellow may be all right but you can 
always rely on us.'' 

One grocery chain expert who has studied the question of 
independent competition has noted the following methods by 
which independent chain store retailers were trying to hold their 
business and even increase it: 

1. Several retailers have installed a window bakery and feature fresh 
baked bread, cakes, etc. 

2. Others have joined a corporation which enables them to buy groceries 
direct and save the jobbers' profit. 

3. A few have opened confectioneries in connection with their grocery 
stores, so they can stay open Sundays. 

4. A few have combined groceries and meat markets with good success. 

5. Many little grocers have gone into market houses, where a small stall 
can be rented and where a comfortable retail business can be built up 
without much risk or high rent. 

It is well worth quoting the opinion of an official of one grocery 
chain in regard to the status of the independent grocer. 

He predicts a ^^war" between the various distributors of 



COMPETITION 119 

foodstuffs, because the cost of living must be reduced, and that 
means ehminating the. bad accounts, the inefficiency of small 
grocers, and the other unnecessary expenses incidental to the 
old-style method of conducting a grocery business. 

There are more failures in the grocery business every year, 
according to this authority, than in any other line of business. 
Ne'er-do-wells and dreamers who have a few hundred dollars to 
spare start a grocery store and settle back for a long lifetime of 
easy profits. Others start stores and let their wives and daugh- 
ters run them while they keep on with their regular jobs. Such 
^grocers' are easily stampeded into buying too much, they have 
no grounding in the rudiments of business, and have not the 
stamina to carry them through when business is a little slow. 
Most of them just choose the grocery business because ^if we 
can't make it go, we can eat our stock ourselves. ' 

The small retailers, like the poor, will be always with us. And as 
long as we have small retail grocers, we shall need wholesale grocers. 

Chain Competition with Other Chains. — There has been much 
debate, more in the past than at present, about the possibility 
of gigantic chains monopolizing the retail trade of the country. 
The United Retail Stores Company is frequently quoted as an 
example. 

The best safeguard of the public against high prices is in most 
cases the chain. In communities where the local dealers fre- 
quently charged all the traffic could bear, the advent of the 
chain store revolutionized prices. When two chains or more 
share the territory in a city and cover the same ground, there is 
a certainty of low prices. For example, the chain grocery busi- 
ness is not in one set of hands. New chains are constantly 
springing up and taking their place by the side of old ones. 

The most potent argument against the chain store's being 
able to monopolize the retail trade is that the average chain 
deals in products made from the most ordinary materials, things 
which no one could possibly corner. In the grocery chain, for 
example, what individual could hope to control the supply of 
sugar, coffee, beans, tea, cocoa, wheat, corn, etc.? The moment 
a chain tried to charge more than a fair price, the field would be 
flooded with retailers anxious to undersell him. 

It is a strange fact, but many times corroborated, that if, 



120 CHAIN STORES 

by the side of an old-established chain branch, a new branch 
of another chain comes, the old chain store shows no diminution 
in sales, perhaps even an increase. In the majority of cases, 
the new branch builds up a satisfactory trade for itself. It 
is not recognized by many retailers that the coming of a chain 
store will mean increased business for the whole locality. People 
will buy in suburbs who had previously purchased in town. 
The price appeal of the chain store is a universal attraction. 

Private Brands. — Just as unfair competition, secret discounts, 
etc., have been the slogans of the independent retailers in their 
denunciation of chain stores, the cry of the manufacturer has been 
against the private brand of the chain store. 

It was found very early in chain store development that it 
was possible to make products and put them on sale in the chain^s 
own stores at a much lower price than a nationally advertised, 
well-known product could be put out. These private brands 
became a bone of contention and remained so for many years. 
Both sides went too far and lost money by it. At one time, 
Mr. Hartford, the founder of the Great Atlantic & Pacific Tea 
Co., leaned heavily to private brands, but his keen business sense 
finally taught him that the public will eventually have what it 
wants, and if it prefers nationally-advertised goods, it is more 
profitable to sell them than to allow the customer to go elsewhere. 
As far as substitution is concerned, the chain store clerk or 
manager has no time to spend in pushing private brands. In 
fact, he is compelled to spend nearly all his time in disposing of 
articles called for by customers. The manufacturer of branded 
goods can be sure, at this date, of having his goods stocked, 
provided he creates a large enough demand for them. 

There is frequently a problem to meet in the grocery business 
when the policy is to simplify the stock yet at the same time 
satisfy the majority. This is the frequent cause of a cry of 
substitution on the part of the manufacturer. The chain store 
side of the question is rarely heard. Here is what one chain 
store has to say: 

** We don't handle Gold Dust, Grandma's Washing Powder, Rub-No-^ 
More and a dozen other soap powders. Instead of these, we standardize 
on Sea Foam soap powder, buy it in car-loads and push it hard. If a 
woman comes into one of our stores and asks for Gold Dust, the clerk (if 



COMPETITION 121 

he is any good) will tell her why we do not handle it and that Sea Foam 
will do anything that any other ordinary soap powder will do. 
Maybe he sells her a five cent package of Sea Foam and, if she likes it, we 
have made a new customer. Frequently, of course, she will not listen 
or refuses to try a substitute. But a chain store has to cater to the 
majority, and we have so many advantages in simplifying our stock 
that we do not worry about the occasional customer that wants some- 
thing else. 

''Most retail and wholesale grocers get loaded up with a lot of dead 
goods that nobody wants. We take on new items, now and then, but 
generally drop an old item when we do. Recently, at one of our 
managers' meetings, there was considerable desire shown for us to 
stock a certain baking powder, an advertising campaign being then in 
full force on this item. We called for a vote and found that more stores 
wanted Rumford's (which we already handled) than this other brand. 
We chose, therefore to stay with Rumford. We do not wish to divide 
our business between too many items, because that means we should 
have to buy in lesser quantities, lose our quantity discounts, and also 
not be able to turn over our stock so frequently. '^ 

The main reasons why chain stores push private brands of 
their own are: 

1. PossibiKties of making extra profits. 

2. The advertising value of the brand to the store. 

3. Avoidance of trouble with manufacturers on price disputes. 

Naturally, the first consideration carries the most weight 
but chain stores realize that sales resistance eats up profits 
and they will never succeed in trying to stand out against an 
overwhelmingly strong popular brand. 

The manufacturers' private brands are nationally advertised 
and must be so if the chain stores are to stock them. But the 
chain's own private brands as a rule are unadvertised in any 
way other than by display, and by price comparisons indicated 
by means of tags. The United Drug Co. has advertised its 
private brands in many cases. It advertises nationally, locally, 
and by means of dealer helps. It has made its trade name 
'^Rexair' known all over the country. Ordinarily, this company 
pursues a policy of concentrating on one brand and pushing it. 

Substitution. — What is meant by substitution? There is a 
difference of opinion on this point. Some maintain that it is 
limited to wilful delivery of one package in place of another. 



122 CHAIN STORES 



^helj 



Others contend that it is the sales effort of the clerk to induce the 
customer to ^Hake something just as good/' The chain store 
organizations claimed that it was a fundamental rule never to 
substitute, but always to give the customer what he wanted if 
it was in stock and never attempt a sale until after the customer 
had made his choice. The manufacturers claimed that the bonus 
which many chains give to their clerks as a reward for selling 
their own goods made it impossible for the chain to stop substi- 
tution even though it desired to do so. 

In view of this difference of opinion, the report of an investi- 
gation of the Liggett stores in Greater New York, made by J. A. 
Murphy, representative of Printers' Ink, and by the president 
of a large pharmaceutical company which manufactures and dis- 
tributes some 2,000 items, is informative. Report had come from 
checkers that the Liggett stores were flagrantly practicing sub- 
stitution, and, in the case of the company in question, substitution 
was fairly easy because the company had stopped advertising. 

All but five or six of the 72 Liggett stores on the list were 
covered. Mr. Murphy asked either for Baume Analgesique 
Bengu^ or Scott's Emulsion. To make matters doubly sure, 
he often wrote the name of the former product on a slip of paper. 
The president of the pharmaceutical company asked for his own 
products. Both men pretended not to know each other. 

In the first half-dozen stores requests were made in a brisk 
and businesslike manner. There was absolutely no attempt to 
substitute or to sell additional merchandise. 

In the next group of stores visited, the requests were put 
in a less positive fashion, asomething like the following: ^' A 
small bottle of Scott's Emulsion. Scott's is the best, isn't it?" 
The answers varied from ^^It is a very good brand," ^^It is the 
best known," to ^^We carry several." 

The president finally asked a girl why she didn't take advan- 
tage of such a good chance to push the brands of the company. 
She said it was against the rules of the company, and customers 
must be given what they ask for. 

The conclusion is that the only way for the manufacturer to/ 
sell his goods in chain stores in competition with the private 
brands of the chain organization is to get the public to ask for 
them. The chain store will sell just what its customers want. 



COMPETITION 



123 



Combination.: — One problem remains for discussion in connec- 
tion with competition between various chains, namely, the 
tendency of the larger chain to absorb the smaller chain. This is, 
as the ^^ Principles of Marketing,'^ by Ivey, points out, a simple 
case of cause and effect. The greater the number of stores, the 
greater the outlets. The greater the outlets, the more competi- 
tion in purchasing. To be able to purchase in large quantities a 
chain must have a certain number of outlets, and it may prove 
far cheaper to purchase or affiliate with another chain already in 
operation and in this way at one moment secure this purchasing 
advantage. 

In addition, to function properly, a chain must have a certain 
size. It enables much more efficient standardization of routine 
management and expenses. 

Lastly, there has been an unconscious profiting by one of the 
chain store principles of growth. The larger the number of 
member stores, the larger the sales per unit store. We are 
discussing here the reasons for combination, and this is the most 
potent one. To go back to our old illustration, the Woolworth 
stores, which are not affected greatly by prosperity and depres- 
sion, we find the following facts. 

F. W. Woolworth Company 



Number of stores 


Total sales 


Sales per store 


1911 


596 


$ 52,616,123 


$ 88,282 


1912 


631 


60,557,767 


95,939 


1913 


684 


66,228,072 


96,824 


1914 


737 


69,619,669 


94,340 


1915 


805 


75,995,774 


94,404 


1916 


920 


87,089,270 


94,662 


1917 


1,000 


98,102,857 


98 , 102 


1918 


1,039 


107,179,411 


103,156 


1919 


1,081 


119,496,107 


110,542 ' 


1920 


1,111 


140,918,981 


126,800 


1921 


1 , 143 


147,644,999 


129,181 



Nineteen hundred and fourteen was the only year to show a 
recession over figures of sales per store for the preceding year, 
and this can perhaps be ascribed to the outbreak of the war and 



124 CHAIN STORES 

the immediate depressing effect on every type of mercantile 
activity. 

In 1911, sales per store were $88,282, and in 1920 sales per 
store were $126,800, a difference of $38,518 for the average 
store. The Kresge stores, by raising their price limits, were 
able to increase average sales per store from $150,671 in 1915 
to $271,139 in 1920, an increase of over $120,000 in average 
sales per store, with an increase of fifty store units. 

This principle of increased sales with increased number of 
units applies elsewhere than in the five and ten cent chain field. 
Take, for example, the Great Atlantic & Pacific Tea Co. which 
possesses the largest number of retail stores under its own man- 
agement. Back in 1915, it had 1,726 stores and gross sales for 
the year were $44,441,000. In 1919 there were 4,246 stores and 
gross sales of $194,646,000. In 1915 sales per unit store were in 
the neighborhood of $25,000 and in 1919 were over $45,000, an 
increase in unit sales of over $20,000. 

Thus there is a logical incentive to combination because of 
the increased economies obtained thereby, and the increased 
volume of sales per unit in operation. 

The Bases of Chain Store Competition. — Every successful 
line of business can trace its success to certain policies, to the 
protection of patents perhaps, or the protection of tariffs. The 
success of some companies may depend on the personality of 
the executive. The reasons for chain store superiority lie not 
so much in the application of one policy as in the application of 
the consensus of many policies. 

In order to review some of the main reasons which make it 
extremely difficult for an independent store to maintain itself 
in competition with a chain store, and which are the bases for 
the very keen competition in price, service, etc. of one chain store 
system with another, the following ten headings are arranged 
alphabetically without any attempt to classify them according 
to their importance. 

1. Accounting 6. Personnel ^ 

2. Display 7. Price 

3. Goodwill 8. Purchasing 

4. Location 9. Sales policy 

5. Management 10. Turnover 



COMPETITION 125 

1. Accounting. Many retail stores keep no accounts and some 
keep partial accounts; l)ut very few keep full accounts. The 
whole (efficiency of the (;hain store orp;anization is l)ase(l on careful 
accounting. Sonne companies have spent years in standardizing 
and rearranging their systems of accounts to make; them more 
perfect. 

A proper system of accounting allows the chain executive to 
know at any moment the state of affairs in his business as a whole 
and in any particular store. Accounting is a necessity to a chain 
organization but to the independent netailer is a luxury which 
he feels unaljle to afford. On this head the chain has mark(!d 
advantages. 

2. Displ/iy. A chain organization sells its goods through dis- 
play which, it has found, is the easiest and least (ixp(;nsive form 
of advertising. Each member store is in itself an individual and 
typical display. Each interior helps to carry out the standard 
plan. The window trims are arranged by experts who know how 
to design displays that will make sales. 

Lastly, the goods are shown in the best possible fashion, with 
prices tagged plainly. Contrastcnl with the independent store, 
the comparison is all in favor of the chain. When compared with 
each other, the displays of two chains dealing in the same; line of 
goods often show little difference. But this is a v(ery real item in 
competition, and one in which the independent retailer can profit- 
ably tak(; lessons from the chain. 

3. Goodvnll. Can a chain store exercise so strong an appeal to 
its customers that they will return regularly? Some say it can, 
and some say it cannot. A great d(;al dcepends on the location 
and the character of the clientek; passing the store. More 
depends on the personality of the store as interpreted by the sales 
force and the general appearance of the premises. 

The great value of goodwill lies in the r(;gular customer. 
This ability to get and hold regular trade is what piles up sales 
in a store. It has normally been considered that the independent 
retailer has a monopoly on this goodwill, that by his s(;rvices and 
his attentions he can secure and hold a certain p(;rc(intag(; of 
trade. Experience has proved and is proving that the manager 
of the chain store has at his disposal exac^tly the same means of 
pleasing the customer. For exampk*, one of the large grocery 



126 CHAIN STORES 

chains has just installed a delivery service delivering for customers 
on the payment of ten cents extra. Thus, the customer can 
very often make her purchases at the chain store, have them 
delivered, and still find her bill less than if she had gone to the 
independent store. 

4. Location. ^^ There is a right place and a wrong place to 
locate a store,'' said F. W. Woolworth. '^Put your stores where 
the dollars stick out/' says B. H. Kroger, president of the 
Kroger Grocery and Baking Company. The ability of the chain 
organizations to pick and choose the spots which make failure 
next to impossible has been one of their strongest assets in retail 
competition. It is frequently possible to see three or four chain 
stores in the same block, all dealing in groceries and all appar- 
ently successful. The independent retailer as a rule does not 
know how to locate. He may even shun the good locations 
because of the proximity of a chain store, anxious as he is to 
avoid all price comparisons. 

5. Management. Chain stores have brains to direct them. 
This naturally gives them an enormous advantage. They can 
afford to pay an executive to see that no mistakes are made in 
policy. The independent retailer has to find this out for himself. 

Good management is more than seeing the stores open at eight 
and close at six. It is more than seeing that all links are func- 
tioning properly and that there is no friction. Good management 
means careful business prediction, the faculty of seeing ahead. 
It means a thorough grasp of business principles. Business is no 
longer an empirical enterprise which anyone with a small amount 
of money may enter. It has become a science, and each phase of 
business overlaps another phase. Thus the independent retailer, 
encompassed as he is in a very narrow sphere, is at a marked 
disadvantage. 

6. Personnel. The store managers and the clerks have always 
been cited as the chain organization's weakest point, and prob- 
ably this is true. Human nature is very difficult to standardize, 
especially at a distance. It is even more difficult to keep it 
interested unless there is some strong incentive. Personal profit 
inspires the interest in the independent retailer. And the chain 
has borrowed this incentive for its own use. It adds a security 
against failure which the independent owner can never feel. 



COMPETITION 127 

If the personnel is the chain^s weakest point, everything 
that can be done towards making it as strong as the rest of the 
organization is being tried out in different ways by different 
chains. It seems generally agreed that the manager and possi- 
bly the subordinate clerk should participate in earnings. That 
is, a premium is placed upon the good salesmanship of the clerk 
and the good management of the store manager. 

7. Price, The independent store cannot sell at the same price 
as the chain store. For many people, this constitutes the strong- 
est reason for the strength of the chain. Why should people pay 
more at the individual store when they can get the s^me thing 
for less money next door? 

As time goes on, this question of price will grow even, more 
important than it is now. When competition between chains 
becomes keener, as it inevitably will, practically the ultimate 
point of differentiation will be in price. The costs of two chains 
of approximately the same size will vary little. Whatever 
economies good management can make will be reflected in the 
price. 

8. Purchasing, The economies of purchasing are all on the side 
of the chain. The history of the chain movement has been one 
long rebellion against the middleman's discount and an effort to 
buy nearer the source. After a long struggle, the combat seems 
to be settled and most manufacturers agree to sell the chains 
direct. They cannot afford not to do so. 

The independent retailer cannot, as a rule, buy in quantities. 
He has no place to store away surplus supplies, and, even if he 
did have, they would be too old by the time he was ready to sell 
them. The jobber, therefore, is a necessity as long as the small 
retailer lasts. 

Savings in purchases can generally be passed along to the 
public. The quantity discount is the independent's chief reason 
for being unable to meet chain store prices. 

9. Sales policies. The chain organization picks the products 
that will sell themselves rather than those which have to be sold. 
It devotes itself to a few lines of goods, rather than to a great 
many. The goods which are sold are generally staple articles. 
Every article must prove itself before being allowed a permanent 
place on the shelves. 



I 



128 CHAIN STORES 

10. Turnover. The chain store has found that profits from 
seUing are derived from turning goods quickly at a low profit l| 
rather than seldom at a high profit. The independent retailer in 
many cases has not discovered this. It is, or should be, a rule in 
the chain store that no goods should be allowed to stay on the 
shelves beyond a certain time, varying, of course, with the nature 
of the product. If they do not sell, they must be moved at any 
price. Perhaps some other store can sell them. If not, reduce 
the prices until they go. 

Conclusions. — All the phases of competition have not been 
exhausted in this chapter. Only those have been discussed 
which have seemed to refer most specifically to the chain store and 
its sales problems. The point which appears from an analysis 
of the essentials of chain store competition is that there is nothing 
phenomenal about it. It is, in the last analysis, nothing more 
than the scientific application of business principles to the prob- 
lems of retailing. The remarkable fact is that the rise of the 
chain store came so late. The extent and rapidity of its growth 
have shown the economic need which existed in the community 
at large. 

The analysis of competition is both an executive and a local 
function. The executive must measure the strength of his com- 
petition collectively in the territory in which his chain operates. 
The local manager must analyze the character of the particular 
specific competition which he must confront. In every case the 
result aimed at and, in the majority of cases attained by the chain 
store, is ''The public be pleased.'' The chain store exercises a 
retailing function and its success must be measured finally by the 
degree of public approbation of its executive and its merchandising 
policies. 



I 



CHAPTER IX 
PRICING AND TURNOVER 

Outline 

Theory of pricing. 

1. Fallacy of old theory of charging all product will bring. 

2. Proper pricing. 

(a) Determination of by 

1. Purchase price paid by chain. 

2. Share of overhead expense. 

3. Share of selling expense. 

(b) Possible to obtain by 

1. Economic purchasing. 

2. Minimum overhead expense. 

3. Efficient retail store management and accounting. 

3. Methods of pricing in vogue. 

(a) Cost of goods plus share of overhead and selling expense plus 

necessary percentage of profit. 

(b) Price maintained on main stock but loss leaders offered. 

(c) Cut prices. 
Price range. 

1. Normally low. 

2. Policy of decreasing unit size in periods of increasing prices. 

3. Prices standardized throughout chain. 

(a) Exceptions. 

4. Putting price changes into effect. 

(a) Regular intervals or immediately. 
Principles of turnover. 

1. Keep stock turning. 

2. Keep every line turning. 

3. Make profit on every line. 
Increasing turnover. 

1. Increasing rate of sales while stock remains same. 

2. Price cutting. 

3. Shifting goods. 

Rate of turnover necessary. 
1. Dependent on 

(a) Keeping quahty of product. 

(b) Capacity of store. 

(c) Price at which sold. 

9 129 



130 CHAIN STORES 

2. Setting turnover quota for managers. 

(a) Supplying managers with past records in their stores. 
(6) Importance of turnover in 

1. Seasonal goods. 

2. Style lines. 
Securing adequate turnover. 

1. Careful purchasing of goods. 

2. Efficient merchandising policy. 

3. Cooperation of the personnel. 

4. Careful inventory system. 



CHAPTER IX • 
PRICING AND TURNOVER 

Profits in chain store retailing are largely determined by the 
selling price and the rate of turnover. In the careful adjustment 
of these two factors lies one of the secrets of chain store success. 

The price at which a product can be sold is or should be 
determined automatically by 

1. The purchase price paid by the chain. 

2. The share of overhead expense. 

3. The share of seUing expense. 

It is evident, therefore, that a low selling price can be reached 
only by 

1. Economical purchasing. 

2. Minimum overhead expenses. 

3. Efficient retail store management and accounting. 

But the rate of turnover exercises a modifying influence on 
all the above factors. By turnover is meant stock turnover, that 
is, the number of times the money invested in merchandise is 
liquidated and reinvested during the term of a year. Obviously, 
the larger the turnover, the more profits, and consequently 
the lower the selling price, which can be set. 

A large turnover is secured by: 

1. Careful purchasing of goods and products that will sell readily. 

2. An efficient merchandising policy. 

3. The cooperation of the personnel. 

4. A careful inventory system. 

A large turnover, however, will not bring large profits unless 
the selling price is high enough to carry the overhead and other 
charges against it. Thus, in a cut-price war, an enormous turn- 
over may bring enormous losses. But it is obvious that, the 

131 



132 CHAIN STORES 

larger the turnover, the less profit it is necessary to make on each 
sale to obtain an aggregate profit satisfactory to everyone. 

The Theory of Pricing. — In the old days, and even now among 
many retailers, the custom is to mark goods at whatever prices it 
is thought they will bring. Probably everyone has gone into a 
store, priced an article, found it too high, and been on the pointaj 
of leaving the store, when the proprietor said: ''Well, I guess if ' 
can let you have it for a little less.'' Charging the public what 
it will pay, or, in other words, profiteering, is a crime that can be 
laid at the doors of very few chain stores. The chain store policy 
is to deal only in those products which can be sold at a profit, no 
matter how small. Loss leaders, which in the majority of cases 
are not losses, result in increased profits because they increase 
turnover. 

R. C. Swanton, General Auditor of the Winchester Repeating 
Arms Co , has explained the theory of marking up goods from 
cost price so plainly that the following is paraphrased from an 
article of his in the Winchester Herald, the house organ of that 
company. 

Mark-up, he says, is the amount added to the cost of mer- 
chandise to cover operating expenses and a profit. It is con- 
trolled in its upward trend by competition, and may be controlled 
in its downward trend by the use of accounting figures. The 
expense of doing business, which is the largest outlay of money 
outside of the actual purchase cost of the goods, must be covered 
in setting the sales price, before a profit can be taken. Capi- 
tal invested in stock is entitled to a net profit on every sales 
transaction. 

Figure 13 is an analysis of departmental reports. The average 
mark-up for the total sales of all departments, to obtain an aver- 
age net profit of 13 per cent., must be 56.7 per cent., while the 
average mark-up to obtain a net profit of 9.6 per cent, on the 
Tool Department must be 47.4 per cent. This does not mean 
that each item in the tool classification is so marked-up. Some 
may be marked up 75 per cent, but a study of this statement 
shows that if the merchant marked up at this lower figure h^ 
would sustain a loss on each article, and that he would sustain a 
loss on each sale marked up at less than 33 per cent., because the 
ratio of the store's operating expense is higher than the mark-up; 



PRICING AND TURNOVER 



133 




134 CHAIN STORES 

therefore, if the merchant decides, and trade conditions 
favorable, to take a net profit of ten per cent., his safe low limit] 
of mark-up on all merchandise in this class would be 47 per cent, i 
Mark-up is based on cost of goods, and gross profit on returns 
from sales. Gross profit is the difference between cost of goods 
sold and the mark-up price obtained. This amount, in ratio to 
the sales price, gives the gross profit percentage. Noting the 
illustration. Goods in the Tool Department took an average 
mark-up of 47 per cent, and obtained an average gross profit of 
32 per cent. For instance, let us assume an item in the tool 
classification : 

Cost to the merchant $1 . 00 

Plus 47 % mark-up 

Equals $1 . 47 sales price 

The difference between the cost and the sales price is $.47 
which, divided by the sales price of $1.47, leaves a gross profit of 
32 per cent. Assuming that the overhead expense of making a 
sale is 21 per cent, this deducted from the gross profit leaves a 
net profit, or an income on capital invested in the article, of 
11 per cent, on the sale. Much trouble is encountered because of 
the confusing of mark-up with gross profits. Remember that 
gross profit is based on sales; mark-up is based on and added to 
cost. 

Methods of Pricing. — Goods may be charged to retail stores at 
either wholesale or retail prices. In the great majority of cases 
goods are charged at retail so that the member store will have 
but one price to consider, and that price the one at which the 
goods are to be sold to customers. It also simplifies accounting 
methods. 

Where a chain conducts a wholesale business or sells to agen- 
cies, it frequently bills goods to its own stores at wholesale 
prices. If they were to bill their goods to their own store at 
retail prices and to agencies at wholesale prices, it would mean 
keeping up two systems, and would cause much confusion. 

There are several methods of retail pricing in vogue : / 

1. The logical and ordinary method of fixing the price of all goods at a 
certain percentage over the purchase price and the overhead and selling 
expenses. 



PRICING AND TURNOVER 135 

2. Maintaining prices according to the first system, but each week running 
a list of loss leaders at cost or fractional profit. 

3. Selling at competitors' prices, or below them, a practice which leads to 
cut price wars and elimination of the weakest competitors. 



Where operating and selling expenses are standardized down 
to the last degree, there is not much difference in the price at 
which the various chains can afford to sell the majority of their 
products. Some merchandising expedient, some quirk of 
efficiency, may pull them ahead for a moment, but the rest of the 
field gradually draws abreast again, since chain competition is 
essentially a competition of price. 

The Price Range. — The chain stores, as has been mentioned 
before, generally concentrate on staple, low, and medium- 
priced merchandise, because it is in this class of products that 
the largest turnover is obtainable, and these products are sold 
to the class of people to whom the price of the article makes a 
great deal of difference. 

The war brought about very interesting conditions in the 
chain store field. Before that time, when biscuits, chewing gum, 
cigars, hats, shirts, and innumerable articles could be featured 
at a standard price, it gave chain shops something upon which to 
build a reputation. A dollar watch or a dollar shirt or a five- 
cent cigar gave the customer something to remember. 

In the short history of the chain store movement, the war was 
the first major economic upheaval which upset this standard 
price. Nowhere was this more evident than in the five and ten- 
cent store field. For some time previous to the war, the merchan- 
dise assortment of the five- and ten-cent stores had begun to 
narrow. The days when Butler Brothers had been able to offer 
more than 120,000 separate articles to be retailed at five- and ten- 
cents were past. When the war came, it caused a break-away 
from the old, five, ten, twenty-five cent limit. Most variety 
chains found they could not offer a large enough assortment to get 
the required turnover. Woolworth clung to the old policy by 
decreasing the units. The size was made smaller, less candy was 
sold for ten cents, matches which had been one cent a box were 
five cents; things were sold separately, one stocking for ten cents, 
the pail ten cents and the cover ten. To the amazement of its 



136 CHAIN STORES 

competitors and the public, the Woolworth chain was able to 
come through without changing its traditional ten-cent limit. 

Those variety chains which have broken away show as yet no 
tendency to revert to the old system. While keeping their 
lower-priced lines as intact as possible, variety of stock was 
increased. It was known that a large part of any department 
storeys sales were under $1, and the Kresge chain acted on that 
theory with great success. Tinware, crockery, and household 
lines gave way to drygoods, with a tendency, however, to keep 
away from piece goods. 

Generally, the prices of goods in all stores in one chain are 
standardized, except that some chains make a difference for 
stores west of the Mississippi. The United Cigar Stores have 
only one price, and this price is the same for one cigar or a 
hundred of the same brand. 

Managers may be allowed to make their own prices on local 
purchases. One grocery chain management says: ^^ All our prices 
are standardized throughout the chain. The only exception to 
this rule is in the case of green vegetables, dried meats, cottage 
cheese, and other items which each store manager buys for him- 
self and on which he bases his own prices. A store three miles 
away from the markets naturally is entitled to a little longer 
price on lettuce and celery than a store downtown which can 
restock its green-goods counter at any time during the day. 
Also, in the three-mile-away store, the manager runs a larger 
risk of not selling out all his vegetables. He has to add enough 
margin of profit to insure himself against loss.'' 

The question of cutting prices is a matter of individual policy. 
Some stores never cut. The Penney practice is to put the price 
on an article and never mark it down. The American Stores Co. 
cuts prices on its goods when it deems it sound merchandising 
policy to do so. 

Turnover. — How many times must I turn my merchandise to 
make a profit? If this question could be answered specifically, 
much worry would be saved retailers. But, as a matter of fact, 
turnover differs very widely. It is generally larger in the chaixi 
store than in the independent store, and larger in the grocery, 
tobacco, and drug chains than in the diy goods and ^^five and 
tens.'' 



PRICING AND TURNOVER 137 

Just what do we mean by turnover? Ordinarily speaking, 
turnover to the manager of a chain store means the number of 
times the money invested in stock can be Uquidated and rein- 
vested during the year. *^One of the common mistakes/' 
says Mr. Swanton, of the Winchester Stores, ^^in figuring 
turnover is this: you will hear many merchants say: ^My sales 
are $200,000 this year. My inventory is $50,000. I have 
turned over four times, because $200,000 is four times my inven- 
tory figures.' Turnover must be figured as the cost of goods 
sold to the cost value of inventory. Take the case just quoted. 
If this merchant should sell $200,000 worth of merchandise in 
all departments of his business, and his average mark-up was 
57 per cent., his cost of goods sold would be $200,000, less 
mark-up figure, which would be $127,000. This amount, divided 
by his average inventory, say $50,000, would equal two and one- 
half tinies turnover and not four times turnover.'' 

The value of turnover analysis to the chain is that it keeps 
constant check on the articles which show profit and those which 
do not. The great secret of success in chain stores is to keep 
the stock turning, to keep every line selling, and to make a profit 
on every line. A chain would rather be out of a certain product, 
and permit the customer to go somewhere else, than to carry it if 
it is losing money. This explains, according to Mr. F. J. Arkins, 
of the Alexander Hamilton Institute, the reason that in order 
not to lose money, as soon as it is discovered that a particular 
line is moving too slowly, prices are reduced and bargains 
featured. If the first reduction in price does not attract 
attention the reductions continue until a market is found for 
the articles. The whole effort is to move that particular line 
out of stock as rapidly as possible, and, if it is necessary to take 
a loss, to get the loss behind the chain at the earliest possible 
moment. The idea is not new or untried. It was a principle 
established by A. T. Stewart, in the merchandising of dry goods 
in New York, in the early part of the last century. 

It was the strict pursuance of this policy of keeping up turnover 
that allowed the great majority of chain organizations to liqui- 
date without the enormous losses which many retailers experi- 
enced in the post-war deflationary period through holding on to 
their stocks rather than cutting prices before it was too late. 



138 CHAIN STORES 

Analysis of Turnover. — A slow turnover involves waste and 
expense. In some cases the damage is apparent at first sight, 
but in others it lies deeper and must be analyzed. The Chamber 
of Commerce of the United States has divided the elements of 
waste due to slow turnover into the following classes : 

1. Investment. 

2. Interest. 

3. Mark-down. 

4. Salaries and wages. 

5. Shelf or storage room. 

6. Prestige and reputation. 

7. Inefficiency. 

Taking them up individually: 

1. The amount of goods in stock and the amount of time 
these goods must be carried before they are sold determines the 
profit, assuming mark-up is the same. Naturally, the more 
frequent the turnover, the larger the profit on the same 
investment. 

2. As few chain stores are borrowers, the interest charges 
would rarely enter the turnover equation. With many inde- 
pendent retailers, however, interest becomes of great impor- 
tance. 

3. The necessity of marking goods down is ordinarily a 
sign of poor turnover, which, in turn, might have been due to 
overbuying, too high a price, or lack of demand. 

4. Naturally, sales expense is increased with slow turnovers, 
since the same sales force, more efficiently managed, could sell 
in six months what actually sells in a year. 

5. Shelf or storage room is too valuable to be taken up by 
slow-moving goods. 

6. The reputation of the store suffers if it is known to have 
a large stock of old goods. 

7. Over-buying is ordinarily a dangerous policy. Except 
when there are extraordinary conditions, fresh supplies can be 
obtained at short notice; but an oversupply of goods cannot be 
so easily disposed of. Hence the whole chain of evils arising from 
slow turnover will occur. 

Figure 14 shows graphically two ways of illustrating the profits 
due to more frequent turnovers: 



PRICING AND TURNOVER 



139 




140 CHAIN STORES 

Each of the columns in series A represents sales amounting 
to $100,000, but the number .of turnovers increases from 1 in A-1 
to 8 in A-4, and it will be observed that, with each increase in 
turnover, the stock investment as well as the interest are cut 
in two while the amount of profit increases. 

Series B shows uniform stock investments and costs of inter- 
est throughout, while the amount of profit increases with the 
number of turnovers. 

Series A proves the decreased investment needed to perform 
a given amount of business while Series B proves the increased 
business and profits which accrue to the same investment upon 
a multiplied turnover. 

Increasing Turnover. — It is possible to increase stock turnover 
in two ways: 

1. Sales may be increased while amount of stock remains 
practically the same or increases at a rate below that at which 
sales are increasing. This method is the ordinary one and is 
perfectly safe, since it is based on sound merchandising principles. 

2. The second method is to cut the price. As one authority on 
the subject points out, by reducing the price more people are 
included in the group of purchasers, since more people are able 
to purchase an article at $1.00 than at $2.00. 

Price-cutting, however, is a dangerous operation. 

If everybody cuts prices, total sales may not be appreciably 
increased while profits will fall off dangerously. 

Price-cutting of staples rarely does any good except as a loss 
leader. People buy staples — sugar, flour, coal — even though the 
price is high; and a reduction in price will not increase their 
consumption proportionately. Some merchants keep very close 
track of sales on these non-profit items, such as sugar. In the 
Sam Seelig stores in California, the average proportion of sugar 
sales to gross sales is 10 per cent. If one of the stores shows 
sales of 12 per cent. 15 per cent, or even 18 per cent, there is 
manifestly something wrong. That is, sales are not merely 
dollars and cents. If two stores each sell $1,000 worth of goods, 
it is quite possible for one to earn a great deal more than the othe/, 
given the same overhead. One store may sell too large a propor- 
tion of non-profit staples. 

Staples are essentially inert. The profit comes in selling 



PRICING AND TURNOVER 



141 



articles for which demand is not steady, but can be created. 
The most rehable business is that which is neither too elastic nor 
too inelastic, and it is precisely this class of goods in which the 
chain store deals. 

Rate of Turnover. — There is no standard rate of turnover. 
Each store is slightly different, and some stores, even in the same 
chain, vary a great deal. The turnover may vary with the differ- 
ent years, the stock carried, the local manager, etc. Some of 
the Penney stores turn their stock ten times a year, but the 

Jewelry I Iz 

Cloihing Z 

Shoes 3'/^ 

Drygoods 3*l2 

Hardware Viz 

Varieiy 6 

Depf. Stores 6 

Groceries 10 

Candy 12 

Fig. 15. — Average turnover in various lines of merchandise. 




average is between four and six. Some of the United Cigar 
stores are said to turn their stocks 50 times a year. A five- and 
ten-cent store must secure at least six turnovers a year to be suc- 
cessful, and the large chains do better than this. 

Figure 15 shows minimum turnovers for some types of goods, 
the jewelry turnover being so low that no chains have ever been 
organized successfully in this field. These figures should not 
be taken as the approximate rate of turnover only, in any of 
these fields. They are intended merely to give some comparative 
idea of turnover in the various lines. 

Coming down to turnover in a particular line of business, we 
find that articles generally have a relation to each other in rate 
of sales, and that these can be computed with fair accuracy. 



142 CHAIN STORES 

One of the large drug chains, for example, has set certain turnover 
requirements : 

Soda 52 

Candy 20 

Cigars 15 

Merchandise 8 

Total turnover 10 

It endeavors to keep the store managers constantly alive to 
their stock turnover proposition and make them see how impor- 
tant it is that when the inventory is taken, it should closely agree 
with the yearly turnover desired. 

Turnover is especially necessary in candy and cigars because 
proper turnover in those lines has a large influence on sales. 
People like candy and cigars fresh. Patent medicines allow a 
more rapid turnover than drugs. Rubber goods need exceptional 
care. In the case of rubber goods, although overbuying is 
harmful, underbuying and lost sales are even more harmful to 
the gross profit average because goods of this nature bring an 
exceptionally good return. The Liggett chain tries to steer a 
middle course and not lose sight of the fact that annual turnover 
in the store must show ten times or better. Toilet articles, 
perfumes, and novelties more often defeat plans for a proper 
turnover than any other class of drug merchandise. Managers 
are cautioned to use extreme care in stocking these lines. 

According to Mr. Beckmann, of the National Chain Store 
Grocery Association, the turnover figures in grocery lines are 
startling in their differences. The average retail grocer turns 
his goods perhaps twelve times a year, while the chain store 
turns them from 36 to 50 times, according to actual record. 
The wholesaling end of the chain store — that is, the department 
analogous to the grocery jobber — shows a turnover of form 14 
to 18, while the turnover of the ordinary wholesale grocer is 
from six to eight times. 

Securing Turnover in All Lines. — The average independent 
retailers constantly bring down their turnover averages because of 
the large amount of goods on their shelves which either do not sell 
at all, or sell so rarely as to make it unprofitable to carry them. 



PRICING AND TURNOVER 143 

Chain stores go on the principle that all goods carried must 
sell. If reductions in price do not dispose of them, the chain 
makes use of its distribution and concentrates the articles where 
they do sell. It is a fact that some store in the chain can generally 
be found which will sell a product which no inducement to the 
public can move from another store in the chain. 

If a drop in price is known to be coming, or because it is near 
the end of the season, chain groceries hold off from purchasing, 
and transfer goods from the stores that cannot sell them to the 
stores that can. In this way they make sure that no ^ ^ shelf - 
warmers'^ will be in the way at any store when the anticipated 
change takes place. 

To stimulate the store manager, quotas are often made up 
from the records at the central office and sent out to him, showing 
what his total sales for the month should be and perhaps indicat- 
ing turnover in various lines. Thus the store manager knows 
at all times exactly where he stands and whether he is improving 
or running behind previous averages. The merchandise turnover 
of the chain as a whole depends more or less on the purchasing 
policy, but in many chains the store manager has it in his power 
to regulate turnover to a great extent. That is, he selects from 
the lists sent him those articles he can sell. 

The United Cigar Stores Co. ships its stores every week a 
quota of supplies which must be sold. Turnover is especially 
important in seasonal goods and style lines. Failure to turn 
these goods promptly may change profits into losses. 

Turnover and Business Conditions. — It is difficult to resist the 
temptation of purchasing in advance of a rising market. Yet 
time and again the soundness of the principle of selling at cost- 
plus has been demonstrated, and the folly of purchasing far in 
advance of actual requirements. Sharp lifts in price may be 
met by a grumbling purchaser, but he will remember this in the 
future. The chain stores consistently build up a background of 
goodwill by their price policy until the public feels confident 
that it is not being cheated. 

As an example of the soundness of chain policies, the prices 
of merchandise in the United States declined from 25 per cent, to 
40 per cent, in the United States during 1921, while the value of 
sales in the chain grocery stores declined only 16 per cent. This 



144 CHAIN STORES 

shows the actual sales volume must have increased. But, as 
groceries belonging to chains deal mainly in staple articles, the 
increased turnover must have taken place directly at the expense 
of independent grocers whose hold on the goodwill of the public 
was not strong enough to withstand a period of depression. 

Charles E. Merrill, of Merrill, Lynch & Co., a banking firm 
which has financed six of the large chain systems, says: ^^ During 
the first half of 1921, the decrease in sales prices was so rapid 
that the problem was to take in enough for operating expenses. 
This was accomplished by great economies. As a result, the 
chain stores are making more money than they were a year ago 
when high prices prevailed. 

^^The price declines in the five- and ten-cent stores have been 
nearly as drastic as in the grocery stores. By an increase in the 
rapidity of turnover, however, the five- and ten-cent chains have 
been able to side-step losses which occurred to others during 
the price decline.'' 

The remarkable point about this situation is that, by increas- 
ing turnover in a period of unprecedented deflation, chains like 
Woolworth and Kresge were able to make as much money as in 
previous years. It illustrates forcefully the practical advantages 
of turnover and the irresistible attraction of price as a basis of 
competition in hard times. 

Conclusions. — ^' Small profits on an article will become big if 
you sell enough of the article'' was one of Frank W. Woolworth's 
maxims. In these few words he has summed up the principles 
of pricing and turnover. The chain of stores which he founded 
has steadily carried out the policy which he commenced, and was 
the only chain to remain proof against the difficult problems 
which had to be met in the period of war and in the post-war 
deflation. 

It is only necessary to add to the above statement that turn- 
over must be distributed among all the stock and the fundamental 
statement is complete. One of the greatest, if not the greatest, 
reasons for the chain store's pre-eminence in the retail field is 
the careful observance of this policy of pricing and turnover. 
In a way, the necessity of securing turnover ensures a reasonable 
price to the consumer, but it is only by the proper correlation of 
these two factors that the most efficient results are obtained. 






CHAPTER X 
EXPENSES AND PROFITS 

Outline 

Cost of doing business. 

1. Dependent on 

(a) Policy. 
(6) Size. 

(c) Product. 

(d) Location. 

2. Detailed expenses. 

(a) Salary largest. 
(h) Rent next. 

3. Savings in expense. 

(a) Elimination of deliveries. 
(h) Cash-and-carry policy. 

(c) Standardization of method. 

(d) Elimination of waste. 

4. Overhead. 

(a) Decreased by 

1. Increased volume of sales. 

2. Addition of new retail links. 

3. Efficient management. 
The ''cash-and-carry" policy. 

1. Eliminates bad debts. 

2. Enables chain to discount purchases immediately. 

3. Simplifies accounting. 

4. Saves time verifying accounts, making out charge slips, etc. 
Gross profits. 

1. Increase normally. 

(a) Through addition of new links. 

(b) Through increased sales in old links. 

(c) Through improved merchandising methods. 

1. Further standardization. 
Store profits 

1. Dependent on 

(a) Location of store. 

(b) Ability of manager. 

(c) Turnover of products. 

(d) Efficient supervision by headquarters. 
10 145 



146 CHAIN STORES 

2. Advisability of abandoning unprofitable sites. 
Increasing profits. 

1. Increasing turnover. 

2. Increasing average sale. 

(a) Interdependence of cost of product and average sale. 

3. Odd-cent profits. 

4. Profits made by local managers. 



CHAPTER XI 
EXPENSES AND PROFITS 

In spite of large overhead expenses for highly paid executives, 
specialists in window trimming, merchandising ideas, purchasing, 
etc., the chain stores manage to do business at an average cost 
less than the majority of their independent competitors. ^^ Why 
is this so?^^ is the constant query of the independent retailer, 
and he is told to imitate the chain, whereupon he seems 
to be no better off than before. He is told to standardize 
his accounting methods, increase his turnover, cut out credit 
and deliveries, move to another part of town where the location 
is better, sell only stock the public wishes, etc. And because 
he cannot do these things he sets up a clamor about unfair compe- 
tition and secret discounts. The truth of the matter is that the 
chain is an organization of individuals whose combined intel- 
lects form a far more powerful force than the average single 
individual running an independent store can command. The 
store manager is the personal representative of an impersonal 
organization; the independent store owner is the personal repre- 
sentative of a personal business. 

Probably the greatest factor in keeping down chain expenses 
is a careful accounting system. Every dollar that comes in 
bears a certain charge against it, determined by long experience 
and careful records. Policies that do not pay are ruthlessly 
abandoned on the graphic evidence of their failure to make good. 
If a chain finds some particular location does not bring in enough 
business to carry the overhead and earn a profit, that store is 
promptly discontinued. Losses are minimized. No old goods 
are allowed to remain in stock, taking up room and eating up 
profits. It is a combination of business initiative and system 
which keeps down chain store expenses and enlarges net profits. 

The Cost of Doing Business. — The variations in the actual 
cost of doing business are wide. They are dependent on so many 

147 



148 CHAIN STORES 

factors of policy, of size, of line of goods carried, of location of 
stores, etc., so that the matter can be treated only suggestively, 
by stating a few of the general principles, and supporting them 
by concrete examples from stores in several lines. 

The following table is made up from a number of sources, and 
is not intended to be authoritative or complete, but merely illus- 
trative of the effect of the product on costs. 

Cost of Doing Business 

Druggists 22-30% 

Tobacco 8-20 

Dry goods 10-25 

Groceries 4-15 

Variety 18-25 

Shoes ,. 18-25 

Groceries and tobacco, where the turnover is very rapid, 
can usually bring operating expenses farthest down. The Penney 
organization, with a 10 to 12 per cent, operating expense, is unique 
in the dry goods line when compared with 20 per cent, for inde- 
pendent retailers in direct competition with them. 

Detailed Expenses. — The merchandising department of the 
New York World supplies the following average figures on chain 
store costs. 

Average rental 8 % 

Average help 15 

Average loss and depreciation 1 

Average light, maintenance 2 J^ 

Average overhead 3 

Total 29 K % 

The Piggly Wiggly stores present by far the lowest operating 
costs of any figures available. In the week ending October 6, 
1917, the net sales of nine stores operating in Memphis were 
$25, 429.90. The cost of doing business during that same period^ 
was $795.11. The average cost of doing business was 3.12 per 
cent. 

The expense total was made up as follows: 



EXPENSES AND PROFITS 149 

Insurance $ 13 . 70 

Salaries 494 . 85 

Ice 46.20 

Light 21.74 

Rent 180.92 

Sundries 24.32 

Telephone 11.81 

Water 1.67 

Total $795. 11 

Salaries are the largest item of expense, and efforts to econo- 
mize along this line generally result disastrously, especially 



[| Expenses of Drugstores 

I I Expenses of Five and Ten CenfSfvres 





10 16 4.494.48 IJG 1.5^ 0.G9 1.3 047 9.4 1.21 0.87 0.36 0.7 0.51 0.)9 
Salaries Rent Adver. HeaRt Dep. Ins.-Tax Supplies Del. BadDts. 

Fig. 16. — Comparison of expenses of five and ten cent stores with those of drug 

chain stores. 



when it is considered that so much of the chain^s prosperity lies 
in the hands of the store managers. Rent is generally the next 
item. This must be carefully watched. For example, in the 
United Cigar Stores, where every item is figured in percentages, 
it is immediately possible to point to a store paying too much rent. 
If Kansas City were paying eight per cent, for rent, there would 
be an immediate investigation. 

Elimination of delivery and credit accounts, together with 



150 CHAIN STORES 

small amount of advertising, are the largest factors in decreasing 
chain store expenses, as compared with independent retailers. 
The salary percentage, as a rule, is higher. From two to five 
per cent, is saved on deliveries and perhaps 3^ of 1 per cent, on 
bad debts. 

Figure 16 shows a comparison of expenses between the five 
and ten cent store and the drug store. The first three items, 
salaries, rent, and advertising in both cases follow the same 
order. Heat and light in a five and ten cent store, owing to the 
larger unit size, would naturally be double that of a drug store. 

Few chains are willing to disclose their operating costs from a 
just reluctance to discuss their particular methods of effecting 
operating economy. It must not be supposed, however, that 
profits are determined by the cost of doing business. This 
figure with its components is merely the index number which 
points out to the executive how this one factor in profits, control 
of operating expense, stands at the moment. 

Overhead. — Overhead shows broad variations. In periods of 
prosperity, when sales are large, overhead goes down. When 
sales fall off, overhead increases. Overhead is inelastic in most 
of its items, and is slow to react to business conditions generally. 
Where all buying is done at headquarters, overhead is apt to be 
larger than where local managers have some buying responsi- 
bility. 

George H. Bushnell, Vice President and Comptroller of the 
J. C. Penney Co., once stated that each store was charged a fixed 
percentage on sales each month for the maintenance of the 
central offices. This takes care of rent, salaries, traveling 
expenses for officials, etc. In 1918, this percentage was one and 
two-fifths per cent, which included cost of accounting for 197 
stores operated at that time. Accounting was only two-fifths 
of one per cent. This percentage for 1918 absorbed all the 
corporation taxes assessed against the stores. 

Again, the vice-president of a large drug company said: 
'^We aim to keep overhead at four per cent, of gross volume, 
including salaries of general officers, rent, traveling, auditors, sales^ 
managers, etc.'' The executive of another chain of 250 stores 
claimed his overhead expenses had been going down every 
year. For the first year or two it ran up to ten per cent, and since 



EXPENSES AND PROFITS 151 

then had declined at the rate of about one per cent, annually. In 
1918 it was only three per cent. 

Overhead decreases with the number of member stores oper- 
ated. A new retail link in the chain requires little addition to 
the chain overhead. Thus small chains normally have larger 
overhead expenses than the larger ones. The whole matter, of 
course, is dependent on efficient management. Large salaries 
paid to executives do not necessarily mean great overhead, 
because the expense is so broadly distributed, and the profits 
accruing from the benefits of having these high-salaried execu- 
tives at the head of the business are so large that the entire sum 
appears small. 

Keeping Expenses Down. — Ask the proprietor of an ordinary 
retail store what his expenses are and he may be able to tell you, 
but probably he will not. The executive of a chain can tell 
almost instantly just what the expenses of the chain as a whole are 
and the expenses of each his stores. Expenses are kept down 
and should be kept down by unceasing supervision. The varia- 
tions in expense between stores of the same size that have 
obtained their normal volume of business is not as a rule very 
great. In the case of a-new store, of course, which has no definite 
clientele, and is not known, etc., there is a high initial overhead 
which comes down to normal as the store becomes established. 

In one drug chain all the store managers are given a bonus 
of $25 a month if they can succeed in holding their expenses, 
outside of rent and advertising, down to 15 per cent, of their 
sales. Rent and advertising are eliminated because the selection 
of the location and the rent paid are not controlled by the store 
manager. This, of course, is true in almost all chains. 

All percentages used in making up the bonus are computed 
according to the sales volume of the store. 

Salaries and commissions 10% 

Light, heat, water 1}4 

Contingent, renewal, expenses IJ^ 

Supplies 2 

Total 15% 

A great many of the store managers earn the bonus every 



152 CHAIN STORES 

month, since this 15 per cent, is computed on the average of all 
stores, and many managers find it possible to surpass this 
average. It can be done by getting more volume of sales and 
turnover, or actually decreasing some of their expenses. The 
store managers, in addition to the actual cash bonus, are glad to 
have their store make a better showing than the other stores, and 
it makes them feel as though they were on the road to promotion. 

This example has been given because the majority of chains 
base their bonus to store managers on the volume of business 
or the net profits of the store. 

Albert I. Stewart, Manager of the Sam Seelig Stores in Cali- 
fornia, says the average cost of doing business for a grocery store 
is 13 per cent. A curious system of giving a bonus to managers 
is in vogue in this organization. Every manager who at the 
end of the month shows an actual inventory in excess of his book 
balance gets a bonus of 3^^ of 1 per cent, of his sales for the 
month. The basis is not volume of business but store manag- 
ing efficiency. The manager who constantly earns this bonus 
has his pay raised. 

The bonus is reckoned not on expense but on inventory. 
Every month the inventory man comes around. Suppose one 
month he finds stock worth $3,809.05 and the following month 
$3,824.04, as in the example quoted in ^^ Business'' for November, 
1921. Then headquarters draws up this recapitulation. 

Inventory at beginning of month $ 3 , 809 . 05 

Purchases through month 6 , 444 . 08 

Total charged $10,253. 13 

Sales for month 6,497.06 

Book balance $ 3,756.07 

Retail inventory 3,809.05 

Book balance 3,756.07 

Gain $ 52.98 

The reason for this gain is that many articles are invoiced 
to the store at group prices, that is, two bars of soap for 15 cents^ 
three cans of soup for a quarter, etc. Thus if the store is properly 
managed the manager should have no difficulty in showing a 
profit. 



EXPENSES AND PROFITS 153 

Eliminated Expenses. — The majority of chain stores are 
"cash-and-carry/' In the last 20 years this idea has become 
thoroughly fixed as one of the principles of chain store operation. 
It has several great advantages: 

1. It eliminates bad debts. 

2. It enables chain organizations to discount their purchases 
immediately, and this alone is a saving not generally recognized. 
For example, 2 per cent, payable in a month is 36 per cent, in a 
year. 

Savings Effected Through Taking Discounts 

Net Per Cent, per Annum 

1 per cent. 10 days 30 days 18 

2 per cent. 10 days 30 days 36 

3 per cent. 10 days 30 days 54 
3 per cent, cash 30 days 36 
5 per cent. 10 days 30 days 108 
8 per cent. 10 days 30 days 142 

2 per cent. 10 days 60 days 144 

3 per cent. 10 days 60 days 216 
2 per cent. 30 days 60 days 24 
5 per cent. 30 days 4 months 20 
5 per cent. 30 days 60 days 36 

3. It simplifies accounting, which otherwise would assume 
great proportions. 

4. It saves time verifying accounts and making out charge 
slips, bills, etc. 

Another great expense which has been done away with by 
chain organizations is delivery. In the case of grocery stores 
this expense often mounts up to four and five per cent, of gross 
sales, while a department store pays around 13--^ per cent, for 
deliveries. 

The Piggly Wiggly stores by their self-service idea have 
cut down the largest item of expense, that is, labor, but it has 
yet to be proved how far the self-service dea can be extended. 

After all, the greatest universal saving effected in chain store 
operations is the efficient standardization of all processes con- 
nected with running the business from the top to the bottom. 
The greatest saving is the elimination of waste. 

Profits. — The ultimate proof of the success of any business is 
the ability to pay regular dividends to stockholders. Capital is 



154 



CHAIN STORES 



invested in the business for the sole purpose of having it return 
net profits. Net profits on sales are not the same as net profits 



18 

17 
16 
15 
14 
13 
12 










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\ 


V / 


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ti^ 








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1912 1913 1914 1915 1916 1917 1916 1919 1^20" 

Fig. 17. — Comparison of net earnings in common stock and ribs of the 
F. W. Woolworth Company. 




1915 1916 1917 1915 1919 1920 ' 1921 

Fig. 18. — Comparison of earnings per share of common stock of the four 
largest five and ten cent store chains. ^ 

on the invested capital. They are higher or lower in accordance 
with the number of times the inventory can be turned over and 
the percentage of net profit realized. Figure 17, showing the net 



EXPENSES AND PROFITS 



155 



earnings on sales of the Wool worth Co., compared with net 
earnings on common stock, shows how wide the variation between 
the two may become. With the exception of 1912, the year of 
the Woolworth reorganization, net earnings on the common stock 
have been larger than net earnings on sales each year. 

Figure 18 shows a comparison of the earnings per share of 
common of each of the four largest five- and ten-cent store organi- 
zation during the past five years. Woolworth, as mentioned 
before, was the only one of these chains to keep the price limit at 
ten cents, while the other chains went up above this. The point 
which this chart clearly brings out is that a chain store dealing 
in the cheapest kind of commodities, as the five and ten cent 



Depf.Store 


4%| 


Five and Ten 
Cent Store 


77o| 


Cigars 


8%| 


Drugs 


8%| 


Shoes 


8%| 


Restaurant 


I0%| 


Cloaks and Suits 10% | 


Women's Wear-Wais 


.t5l5?ol 




Orocery 15 /o| 

Fig. 19. — Percentage of profit required on gross. 



store, can make profits in times of high prices as well as in those of 
low prices. 

The ideal of the United Cigar Stores for a long time was 
to cut gross profits one per cent, each year and by selling the con- 
sumer more at a lower price make larger net profits. Ordinarily 
a chain store is satisfied with a far smaller profit on gross than 
the independent, and the secret of its willingness to accept 
this lies in turnover more than in any other cause. It pays to 
sell Uneeda Biscuit a shade less than independent grocers when 
the chain can turn it 52 times in the year and the independent 
grocery not half so often. The average grocer would like to get 



156 CHAIN STORES 

25 per cent, gross profit on a sale, and this he feels he must do if 
he is going to make a profit. The chain grocery in many cases is 
satisfied with half this. The grocer may get five to eight per cent, 
net, but a chain grocery with a turnover from three to four times 
as large can be satisfied with two per cent. net. 

Figure 19 shows the percentage of profit on gross which chains 
in various lines of retailing plan to obtain. These figures, of 
course, are mere approximations, and it is perfectly possible for 
an organization to operate successfully with a larger or smaller 
profit on gross. Generally, the older the company, the smaller 
profit needed to obtain on gross. This is due to the standardiza- 
tion of method which comes only with long practice. 

Store Profits. — Profits from each individual store depend on all 
the factors we have been discussing — on the ability of the man- 
ager, on the location of the store, on thepricingof the products, on 
the turnover, on the efficient supervision by the central office, 
etc. Notwithstanding all these attentions, some stores make 
more money than others, because of the predominance of some 
particular advantage. Stores that do not make profits should 
in most cases be abandoned, and actually are. If there has been 
a mistake in judgment, the easiest way to remedy it is to take 
immediately whatever loss has been incurred and start another 
store somewhere else. 

Some chains find it desirable to operate several links at a 
nominal profit rather than sacrifice the advantages to be gained 
in the way of publicity and advertising. A show store which 
barely pays for itself as an individual unit may serve as a drawing 
card for all the others. 

Store profits, like everything else, and more than anything 
else, are scrutinized by the management. If profits fall off 
in a particular store, there is immediate inquiry. There is 
no waiting to see what will happen next month. There is an 
investigation to find out what really happened to cause this 
sudden fiuctuation. A sudden profit causes a similar investiga- 
tion to find out whether the cause for profit in that store cannot 
be applied equally well to other stores. The chain organization 
is constantly profiting by the mistakes and by the constructive 
plans of its store managers. 

It is to the advantage of nearly every individual in the chain 



EXPENSES AND PROFITS 



157 



to increase profits. It is possible, therefore, to teach the person- 
nel methods of increasing profits. One method which has been 
found successful is to increase the size of the average sale. 

Law of the Average Sale. — An increase in volume, in itself, 
does not necessarily mean an increase in profits, but an increase 
in the average sale per customer does mean an increase in profits. 
The following figures and comments are adapted from an article 
by K. G. MacDonald, General Manager of the Federal System 
of Bakeries of the South: 

The law of the average sale is briefly as follows: ^^The cost of 
the product sold, the average sale per customer, and the net 
profit are interdependent — fluctuations in one are reflected in 
the other two, and by increasing the average sale, the profit is 
also increased.'' 

The following figures were taken from six different stores in 
four different states, chosen at random. In the case of these 
stores, the cost of the products fluctuated with the change in 
price of the raw materials from which they were made. In the 
average store this factor would show far less fluctuation, since in 
normal times the cost on the average varies but little. 

Following are the figures on store A: 



•A" 



Raw 
material 
used % 



Ave. 
sale 



Profit 

% 



Increase or decrease from 
previous month 



Raw 
material 



Ave. 
sale 



Profit 



June (sales, $4,043.26).. 
July (sales, $3,783.57).. 
Aug. (sales, $3,667.52).. 
Sept. (sales, $3,614.60) . 



42.5 


24.0 


11.1 






45.1 


24.9 


12.5 


+2.6 


+0.9 


45.0 


23.8 


7.9 


-0.1 


-1.1 


40.8 


24.9 


12.0 


-4.2 


+ 1.1 



+ 1.4 
-4.6 
+4.1 



In July, this store earned more profit than in June, although 
the July sales were nearly $300 less than the June figures. 
Although the material cost increased in July, the profit also 
increased. As an explanation of this, the average sale was 
increased by nearly one cent per customer. Comparing July 
with August, although material cost was lower, the profit was 



158 



CHAIN STORES 



considerably less for the average sale fell off more than one 
cent per customer in August. That is, material cost down, and 
average sale up makes increased profits. 



"■R" 




Increase or decrease from 
previous month 




Raw 
material 
used % 


Ave. 
sale 


Profit 

% 


Raw 

material 


Ave. 
sale 


Profit 


June (sales, $3,847.19)... 
July (sales, $4,015.81)... 
Aug. (sales, $4,248.52)... 
Sept. (sales, $4,699.54) . . 


44.5 
51.0 
43.3 

42.8 


20.9 
21.7 
20.9 
21.7 


2.4 

5.2 

16.3 

18.3 


+6.5 
-7.7 
-0.5 


00 00 00 

+ 1 + 


+2.8 
+ 11.1 
+2.0 



In store B there is an increase in volume and increase in 
average sale in July as compared with June which makes in- ! 
creased profits even although material cost was higher in July. 
Comparing August with September, although material cost was 
practically the same, the profit was increased because the average 
sale was increased by almost one cent per customer. 



••C" 




Increase or decrease from 
previous month 


Raw 
material 
used % 


Ave. 
sale 


Profit 

% 


Raw 
material 


Ave. 
sale 


Profit 


June (sales, $5,562.56)... 
July (sales, $6,044.49) . . . 
Aug. (sales, $6,597.96)... 
Sept. (sales, $5,962.16).. 


37.8 
37.4 
37.6 
36.9 


17.8 
18.5 
19.1 
18.9 


16.9 
24.5 
26.7. 
23.3 


-0.4 

+0.2 
-0.7 


+0.7 
+0.6 
-0.2 


+ 7.6 

+2.2 
-3.4 



The figures for store C show how fluctuations in the amount 
of the average sale affect a store doing a large volume of business. 
In four months, material cost varied less than one per cent, but 
the percentage of profit went up as the average sale went up, and 
the profit came down as the average sale dropped. The volume 
being large, a slight falling off in the average sale resulted in a 
serious decrease in the percentage of profit. 



EXPENSES AND PROFITS 



159 



••D" 




Increase or decrease from 
previous month 


Raw 
material 
used % 


Ave. 
sale 


Profit 

% 


Raw 
material 


Ave. 
sale 


Profit 


June (sales, $4,491.65)... 
July (sales, $4,420.66) . . . 
Aug. (sales, $4,221.57)... 
Sept. (sales, $4,198.49). . 


47.3 

37.8 
38.5 
38.9 


21.3 

21.9 
21.6 
23.2 


9.3 

18.7 
15.3 
16.0 


-9.5 

+0.7 
+0.4 


+0.6 

-0.3 
+ 1.6 


+9.4 
-3.4 

+0.7 



June and July was a period of reorganization at store D. It 
resulted in an improved system of operation and consequent 
conservation of materials. Comparing July with August, there 
is a falling off in profit due to lower average sale. In September 
profit for the month increased in spite of advanced material 
cost because average sale was more than 13^^ cents more per 
customer than in August. 



••E" 




Increase or decrease from 
previous month 


Raw 
material 
used % 


Ave. 
sale 


Profit 

% 


Raw 
material 


Ave. 
sale 


Profit 


June (sales, $1,827.55)... 
July (sales, $1,762.00)... 
Aug. (sales, $1,872.28)... 
Sept. (sales, $1,730.60). . 


48.3 
41.4 
46.7 
46.4 


16.2 
16.9 
15.2 
15.0 


-6.9 

1.9 

-0.5 

-3.8 


-6.9 

+5.3 
-0.3 


+0.7 
-1.7 
-0.2 


+8.8 
-2.4 
-3.3 



In three of the four months store E lost money, 
average sale is significant. 



The low 



*• F'* 




Increase or decrease from 
previous month 




Raw 
material 
used % 


Ave. 
sale 


Profit 

% 


Raw 
material 


Ave. 
sale 


Profit 


June (sales, $4,551.21).. . 
July (sales, $4,832.72)... 
Aug. (sales, $5,116.39)... 
Sept. (sales, $4,541.60).. 


38.8 
39.5 
40.3 
42.2 


16.3 
18.5 
19.3 
17.6 


2.5 
6.3 

7.7 
1.6 


+0.7 
+0.8 
+ 1.9 


+2.2 
+0.8 
-1.7 


+3.8 
+ 1.4 
-6.1 



160 CHAIN STORES 

Store F belongs to the class of store where a certain minimum 
volume of business must absolutely be done each month to permit 
any profit at all being earned. This is chiefly on account of 
the heavy fixed overhead in the way of rent and amortization 
charges which stores of this class must carry. Below a certain 
point in sales, no profit at all is possible, no matter how well 
controllable expenses are held down and no matter how high the 
average sale may be. The law still holds, however. 

In the case of this store, $4,500 per month is about the mini- 
mum on which any profit can reasonably be expected. Compar- 
ing June with July, a small increase in the material cost was far 
more than offset by a marked increase in the average sale which 
resulted in an increase in profit. In August, although material^' 
cost was slightly higher, as the average sale increased nearly 
one cent per customer, the profit also showed a fair increase. 
In September, the material cost advanced again, while average 
sales fell off nearly two cents per customer, with a consequent 
sharp falling off in profits. 

This condition has been examined at length because of the" 
lucid explanation of the subject and the evident bearing of the 
point in question, namely, the effect of increased average sale on 
profits. We have already seen in another connection how the 
Liggett one-cent sales, by increasing average sales, allow the store 
to make this enormous reduction in selling price and still make a 
nominal profit. 

Miscellaneous Profits. — A member store in a grocery chain 
frequently turns in more profits than was to be expected by an 
examination of goods shipped to that store. Many items sell 
for nine cents, three for a quarter, or so much a case of one 
hundred. Now these are usually charged out to the store at the 
group price, and consequently there is a steady but uncertain 
source of profit from these odd cents. 

Then many member stores are allowed to buy milk, green 
vegetables, cottage cheese, and other articles by themselves. 
This forms another source of profit not generally counted on. 

Chains go on the theory that ^^a penny saved is a pennjr 
earned. '^ Thus often a careful check is kept on how much paper 
and string each store uses. In many chains a penalty is put on 
waste. That is, a manager is allowed a variation of 3^^^ of 1 



EXPENSES AND PROFITS 161 

per cent, on bulk goods. He is allowed 3^^ pound out of one 
hundred pounds of sugar and if the difference runs over this, he 
is charged for it. 

Conclusions. — In regard to expenses, the chain organization 
expenses should be no more proportionately than those of inde- 
pendent stores in the same locality or neighborhood. As a matter 
of fact, they should be materially less due to the various econo- 
. mies and savings possible for the chain store to effect, which have 
been mentioned and discussed in this chapter. That is, the 
elimination of credit accounts, the abolition of deliveries, and 
the speeding up of turnover will decrease expenses and conse- 
quently increase net profits. 

In comparison with other retailing ventures, the chain organi- 
zations are remarkable for consistent steady profits. By care- 
fully pursuing a policy of increasing sales, increasing turnover, 
and standardizing of method and routine, they offer an almost 
impregnable front to periods of prosperity and depression. 



11 



CHAPTER XI 
ADVERTISING 

Outline 

Tendency towards more extensive advertising. 

1. Increased competition between chains. 

2. Geographical growth of chains. 

3. Improvement in advertising practice. 
The advertising department. 

1. Personnel. 

(a) Advertising manager. 
(h) Window trimmers, 
(c) Artists, etc. 

2. Routine. 

(a) Prepare copy at headquarters. 

(b) Alternative practice of allowing local managers certain per- 

centage for advertising. 
Benefits of advertising to chain. 

1. Increased sales and turnover. 

2. Enlarged clientele. 

3. Increased confidence in chain and its products. 
Media of publicity. 

1. Passive. 

(a) Location. 

(h) Window trims. 

(c) Window pasters. 

(d) Store front. 

(e) Outdoor advertising. 

2. Active. 

(a) Advertising in local newspaper. 

(b) Distribution of ^'dodgers," pamphlets, etc. 
The advertising appeal. 

1. Institutional. 

(a) Selling the organization. 

1. Its policy. 

2. Its methods. 

3. Its personnel. 

4. Its service. 

5. Etc. 

162 



ADVERTISING 163 

(6) Character of copy. 

1. To create interest. 

2. Attractive and artistic. 
2. Price advertising. 

(a) Featuring loss leaders. 

1. Most common form of chain advertising. 
The advertising agency and the chain. 

1. The difficulty of the agency in handling local advertising. 

2. Necessity for contact man. 



CHAPTER XI 
ADVERTISING 



Chain organizations have always prided themselves upon being 
in the forefront of retail progress as far as selling methods are 
concerned. Yet in advertising they have lagged behind, not 
from ignorance, but from choice. The inception of the chain 
store movement occurred prior to the great development in 
advertising. Chain merchandising relied on location rather than 
advertising, all unconsciously choosing the most primitive and 
most effective form of advertising, namely, that of showing the 
product directly to the consumer. 

It is only recently that chain stores began to realize that after 
all the appeal of their products to the public might not be entirely 
based on price. A certain class of people will always be drawn by 
the price appeal, but there are other classes to whom the price 
appeal means little. The chain advertising policy is showing 
signs of breaking away from the traditional price-list advertising. 
What the future has in store is by no means clear as yet, but the 
following tendencies in advertising are at work : 

1. Increased competition between chain and chain, both selling 
at approximately the same price. For one chain to attract the 
balance of the trade it is necessary to find a new appeal. Hence, 
the rise of institutional advertising by some chains, the coopera- 
tion of manufacturers and chains in merchandising campaigns 
which include advertising, etc. 

2. Merchandising and sales policies fully developed. The 
attention of the chains is being turn on publicity. 

3. The very rapid growth of the chain store movement in the 
past ten years. This has made it possible for many chains to 
advertise which before had to confine themselves to handbills and 
'^dodgers.'' After all, a chain must have a certain minimum dis- 
tribution to make advertising effective. 

4. The growth of the science of advertising, and its natural 

164 



n 



ADVERTISING l65 

extension to the chain store field as a logical opening for applied 
modern advertising. 

The real reason why the chains have never advertised to any 
extent is that they never had to advertise. The customers came 
anyhow. It was like the early days of the automobile industry 
when cars could not be made fast enough to supply the demand. 

The Advertising Department. — The advertising of the chain 
organization is rarely done by agencies. The chain is closely 
organized and is composed of men who thoroughly understand 
their business. In some chains the advertising department is 
separate from the other departments, while in others it is attached 
to the merchandising department. This depends a great deal on 
the size of the chain and the policy adopted in regard to advertis- 
ing. In some chains advertising is under the direct control of 
the general sales manager who takes care of sales in all the 
branch stores. In smaller chains the sales manager frequently 
handles the advertising himself. 

The window dressers may or may not be attached to the ad- 
vertising department. They may be part of the sales department 
or of the merchandising department. But in any event the clos- 
est cooperation must exist between the advertising and the other 
departments. 

The personnel of the advertising department may vary from 
where one man does everything, to the large chains where there is a 
manager, an assistant who looks after the copy, a research de- 
partment, an artist, several photographers, copywriters, and 
perhaps the window trim experts. Some chains find it profitable 
to operate their own printing plant to get out placards, notices, 
hand bills, price lists, circulars, and all the other printed matter 
necessary in the routine work of a large chain. 

Where newspaper advertising is done, the ordinary practice is 
to prepare copy at headquarters and send electrotypes to local 
managers for insertion in the local papers. Full instructions are 
sent at the same time about the position of the advertisement, the 
days it is to run, etc. Naturally this newspaper advertising is 
closely coordinated with the weekly sales specials or whatever 
products the company wishes to feature at the time. 

The branch m.anager is responsible for inserting the copy in 
the local papers. In some instances, branch managers are 



166 CHAIN STORES 

allowed to write their own copy and arrange for space. In 
other chains the branch managers are allowed a certain percent- 
age for advertising. In the Penney chain this is two per cent. 
Many chains employ a specialist whose duty it is to buy space in 
papers. They do not care to leave this to the branch manager 
whose experience in this line is likely to be limited. 

Counter cards, window display cards, signs, circulars, hand 
bills, price lists, pamphlets, etc., are prepared by the advertising 
department as a rule although they may be decided upon with 
the sales or the merchandising departments. As a rule they are 
sent to all stores simultaneously. The managers of the Federal 
Bakeries have an opportunity to order what they wish of sales 
promotion matter prepared by the merchandising department. 

When advertising is decided on at the central office, it is usually 
done by conference. Various plans are submitted and the best 
one chosen. One of the determining factors in this, as in so 
many other chain matters, is the records of what happened in 
previous years under certain conditions. The records tell not 
only the kind and character of the advertising, but also the 
products advertised and the actual results obtained. 

It is an excellent plan to call into this conference members of 
the sales and merchandising departments. Their suggestions 
can frequently be used to advantage and objections are much 
easier to rectify when they come at the beginning than after 
everything has been settled upon. 

It is important to have new ideas, not only because the public 
expects them, but because of the stimulating effect on the whole 
organization. Not only the public but the personnel also feels 
the benefit of a distinctive sales policy. 

Does Advertising Pay the Chain Store? — ''Of the firms which 
fail each year, 84 per cent, are among the non-advertisers,'' 
said A. C. Pearson, president of the Associated Business Papers. 
That chain stores have not done what is technically known as 
advertising does not mean that they have not kept themselves 
before the public. Quite the contrary. Each member store of 
a chain organization is an advertisement in itself. The old ^ 
customer, wherever he is, seeks the familiar store front. 

The United Cigar Stores say they have never been able to 
tell whether advertising paid or not. On the books it has been 



ADVERTISING 167 

the custom to set it down as a total loss because it cannot be 
traced. The Childs Company stated that as a result of advertis- 
ing conducted by them, the average check was brought up from 
twenty-five cents to forty-five cents. Each chain will have its 
own problem to face but the issue in each case will be the same. 
*^Good advertising consists in presenting your message to as 
many prospective customers as possible at the most reasonable 
cost, and in a way that will attract their attention and bring 
them to your store.'' 

There have been costly mistakes made in advertising in the 
past. At one time advertising was considered as a panacea for 
all ills. But the chain store has been reluctant to put faith in it 
until after it has proved itself. Consequently the movement on 
the part of the chain stores towards advertising is very significant. 
Even the very conservative non-advertising Singer Sewing 
Machine Co. has announced an advertising programme, with 
emphasis placed on the individual store. The Piggly Wiggly 
Stores have always shown pronounced ingenuity in their advertis- 
ing campaigns. 

Chain store advertising is yet in its infancy. It is too early to 
make any definite statement about the future. What little 
advertising has been done in newspapers and, in a few cases, in 
national media, has been encouraging in its results. Properly 
handled, advertising will help the chain in the following ways: 

1. Increase turnover by increasing demand while stocks remain stationary. 

2. Enlarge clientele. 

3. Increase confidence in the chain and its products — an inevitable 
result of the right kind of publicity. Goodwill is an invaluable asset for 
the chain organization as well as for any other business. 

The Media of Advertising. — This brings us directly to the 
question of where the chain should advertise to obtain direct 
benefits. There are, of course, two main alternatives open to it. 
The first is national advertising and the second is the local papers. 
As the chain advertises to the consumer the choice is limited. 
As far as national advertising is concerned, the field is immedi- 
ately narrowed down to the few chains with national distribution, 
that is, with branches extending over enough of the territory of 
the United States to make it profitable for them to use such a 



168 CHAIN STORES 



1! 



medium of publicity as a national magazine. The Douglas 
Shoe Co. is a consistent advertiser in national periodicals. 
The United Drug Co. has also experimented in this field. But 
when the benefits are analyzed, the results in proportion are 
seen to be small, even for a company with branches all over the 
country. A large number of the readers will not be in a locality 
where it is possible to patronize the chain. Therefore a large 
percentage of this advertising is bound to be lost. In the second 
place a magazine will not cover the local field in the way the local 
paper can. 

The local newspaper offers the logical medium of publicity 
for most chain organizations. Even here, the results are likely 
to benefit no particular link in the chain but rather the whole 
local organization. One chain executive says: ^^The question 
of advertising is very important. Chain stores render less service 
to their customers than old-time stores do: how are they going 
to overcome that fact? We do it by making our prices lower 
and then by telling everybody about it. We operate many 
stores, some one of which is sure to be not more than a few blocks 
from your house, no matter where you may live. But because 
a chain store gets part of everybody's business probably at 
least once a year, and because a customer of No. 5 feels perfectly 
free to stop in at No. 45 if she is out that way and has time to buy, 
we have no actual personal acquaintanceship with our customers, 
such as a small retailer has. We have to shoot our advertising 
in the air and make it cover the whole town. 

^^We use the local newspapers. Some chains use handbills 
or dodgers. Recently some chains have been issuing a weekly 
paper, containing advertisements of the week's 'specials' and 
containing jokes, cartoons and reading matter so that the children 
will take the paper home. This is a new development in the 
business and merits consideration." 

The People's Drug Stores, operating a chain of twelve stores in 
Washington, D. C, used fourteen pages, a complete advertising 
section, in one of the daily papers as a means of bringing home to 
the public that it was the chain's sixteenth anniversary. The^ 
president of the company, M. G. Gibbs, stated that for ten days 
after the advertising appeared the company did the largest 
business in its history. This is an instance of an extraordinary 



ADVERTISING 169 

use of newspaper space, but, as a general rule, chains use news- 
paper space in varying quantity. Some advertise every week; 
some only on special occasions. It is possible the day may come 
when the chain stores will be as lavish users of newspaper space 
as are the department stores today. Drug stores frequently 
take page advertisements for special sales. Grocery stores, 
with a few exceptions, do price advertising. As we shall see later, 
there is some institutional advertising done. 

Preliminary Advertising. — When any retailer starts a new 
store he wants as many people to know about it as possible. 
He may offer special inducements to get people to come to the 
store. He may distribute handbills from house to house. He 
may do nothing at all beyond choosing a good location and relying 
on the name over the door and the price display in the window. 
Without doubt the latter method is the cheapest but it will not 
reach all the people who might be considered as potential custom- 
ers. It is a logical policy to put an advance notice of the opening 
in the local paper. 

When the Metropolitan Stores, Inc. opened in Philadelphia, 
on the first business day it made 69,000 sales to 40,000 customers. 
It is one of a chain of five- to fifty-cent stores, stocking about 
10,000 different items. The method used to attract customers was 
the insertion of the following advertisement in the local papers: 

^'The merchandise is all new. It has been personally selected by 
expert buyers. Many of the articles have never before been obtainable 
at these prices or offered on the counters of chain stores. 

^'The merchandise must be seen to be appreciated. Come to our 
opening. You will be under no obligation to purchase. We want you 
to see the remarkable stocks as they stand complete — to see what is 
possible for a merchandise organization such as ours, buying in large 
quantities, to offer within a selling range of from five to fifty cents. 

*'We guarantee satisfaction to all purchasers. '^ 

Advertising is a short cut. In a comparatively brief time it 
does what otherwise might take and has taken years to accom- 
plish. The fact that the Great Atlantic & Pacific Tea Co. did 
not advertise does not mean that another store, with a location 
equally good and a stock equally low-priced and a manager with 
equally good personality could do the same thing. A store which 
retails to the public must have goodwill. A large chain has a 



II 



170 CHAIN STORES 

fund of goodwill already prepared to draw upon. A chain which 
enters a locality for the first time must create its goodwill. The 
success of the Metropolitan Stores advertising was directly 
mirrored in the number of people who came to the store the 
first day. 

The method pursued by the United Retail Candy Stores when 
they started in New York deserves re-telling. This company, a 
subsidiary of the United Retail Stores Corporation, and amply 
backed with capital, planned to start several stores in New York 
at once and after these were running, go on to another large city. 
The story is told by George A. Nichols in ^^Confectionery Mer- 
chandising'' for August, 1920. 

In New York the company secured leases for its various store 
buildings and then began alterations upon them all at the same 
time. The yellow fences were built around the front of the 
stores. Upon these for some time there was no wording what- 
ever. Then one morning on every fence there appeared the 
slogan ^^ Happiness in Every Box.'' Thereupon ensued a guess- 
ing contest. Everybody wondered what would be in the box. I 
The guesses ran all the way from face powder to cigarettes. 

The fact of the matter was that the candy chain saw in those , 
fences a wonderful opportunity for some real outdoor adver- | 
tising. They might have followed the stereotyped plan and have 
put on the boards an announcement to the effect that the United 
Cigar Stores were now going into the candy business on a large 
scale and that in a short time a store would be opened in that 
location. But this was an unusual undertaking and the ordinary | 
methods of advertising would not answer. Something was • 
needed to keep the interest up until the time for the store to open. 

The slogan was presented in various guises for two or three 
weeks and, then, the billboards one morning contained a big 1 
announcement telling what it was all about. A candy store ' 
was to be opened there on a certain date. '^Happiness in Every 
Box" meant happiness for everybody in the family. The bill- 
board, therefore, contained pictures of happy smilling faces of 
people from babies up to old age. It was explained that th6 
store would be part of a nation-wide system of fine candy stores 
and candy factories planned to being candy quality, candy 
purity and candy goodness direct to the consumer without 



ADVERTISING 171 

extravagance or high prices. This was followed up with adver- 
tisements in the newspapers. 

To conclude, when a chain store decides to enter a new locality, 
it has the following possibilities of publicity to choose from: 

(a) Location 

(6) Window trims 

(c) Window pasters 

(d) Outdoor advertising, cards, etc. 

(e) Moving pictures 

(/) Advertising in local newspapers 

(g) Distribution of hand bills, pamphlets, etc. 

The first methods are dependent for their efficacy upon cus- 
tomers passing by the store. Thus the value of passive forms of 
advertising is almost wholly dependent, apart from the intrinsic 
merit of the display, on the number of people passing the spot. 
Outdoor signs, of course, do not have to be placed directly on 
the site of the chain store, and there is no limitation on number, 
beyond expense and local ordinances governing their erection. 
The non-advertising chains usually have excellent locations and 
feel that they can do without this extra expense. 

The active forms of advertising, that is, local newspapers and 
house-to-house distribution of sales and advertising literature, 
brings us directly to the following section, namely, the appeal and 
purpose of the advertising. The chain itself must decide by 
actual experience which forms are the best to use. Probably it 
will be best to combine several. The window trim may be 
regarded as essential in any case. The Piggly Wiggly arrange- 
ment whereby customers look directly into the store is, in effect, 
a novel method of window trimming. Newspaper advertising 
should pay for itself, especially where the store is a new one and 
people not in the habit of going there. 

The Advertising Appeal. — Chain store advertising falls natur- 
ally into two classes: Institutional advertising and merchan- 
dise advertising. 

1. Institutional Advertising tells about the chain organization, 
its methods, etc. 

Figure 20 shows one of a series of advertisements of the 
Waldorf System, Incorporated, operating a chain of self-service 
lunch rooms, which was run in the newspapers. The advertise- 



172 



CHAIN STORES 



ment appeared in a different Boston paper each day during the 
week, that is the same advertisement came out in a different 
paper daily. Two weeks after the insertion of an advertisement 
in the Boston papers, the same advertisements were started in 




^= 



^^ 



The Waldorf Way 

My wjfe has the honor of 
being the first "contributor" 
to thiB column 



"I don't suppose you f eallz^ 
phe said to me, "how many 
Ihuusand men and wome'i 
nre rushing around joing 
"noon-hour shopplne' theso 
ilnye. Just Imagine how 
many of those people buy 
Christmas presents t h <> v 



don't exactly 
because t' *•- 






•Well, what's the answer r* 
said J, suspiciously. 

"Why, the Waldorf Lunch I 
Good, wholesome food served 
quickly — no delays — there- 
foro extra time for those noon 
errands," she answered. "For 
Instance, today I have lust 
one errand to be done. Vbu 
do It for me this noon — s«o 
the crowds — and then you 
""- tell those shoppers f"-- 



Oood fdea. OK — but some- 
how wncn I was matching 
Ihcise three Bamoles of Some- 
body's yarn, I felt as ttiough 
Id been tricked Into doing It. 
..P^.j""!' '.<"" '""ch at the 
Waldorf almost every day 
anyway. 

nut mv reason for tatlng 
tlier« fs not so much tecau^e 
I save time as It Is t-ecause 
I happen to know how Wal- 
dorf food Is prepared. I i;now 
It s good— made of Jood. fresh 
materials. — tastefully sea- 



I know that Waldorf never 
uses any kind of food ruh- 
Btltutes: that Waldorf ha«h 
Is frcsh-bolled corned beef 
end fresh-holled mealy not.-i. 
toes wrapped, ready for the 
pans In Individual waxed- 
paper packages: and that Val. 
dorf poached eggs aru fresh 
eggs. ^. 






^ 



Le Mardchal Foch and 

The Generals- 



-Plus- 



And I know that Waldorf 

ness and do li as 

best they know how. H. JL. A. 



ALBANY 

BUfKALO 

CAMBRIDGE 

CHELSEA 

ERIE 

EVERETT 



Aii'plancs— tanks— ships — were each at one time or 
another "going to win the war." But what really won 
the war was the united organization of experienced 
commanders plus the efficiency of the combined forces 
they trained and directed. 

And that's exactly what makes every Waldorf Lunch 
successful in the undeviatiug Waldorf purpose to 
maintain worthy dining places for the quick, courteous 
and economical service of appetizing food. 
The Waldorf System Incorporated today is a great 
Allied Anny in tlie service of the public — the alliance 
of four other successful chains of modern lunch rooms 
with the Waldorf. 

All of the "generals" in this Waldorf organization — 
the president and each of the men who are vice presi- 
dents — and operating-managers — have had years of 
practical experience. 

Today the Waldorf System Incorporated is acknowl- 
edged by men who know to be better organized and 
administered than any other chain-restaurant corpora- 
tion in the country. That -means not only exceptional 
quality but exceptional economy for you — at lunch 
time, for instance. 

Executive Offices — 169 High Street, Boilon 

The Elfhiy-Eifhl Lunch Roomn Oprraird by ihr Waldorf Syslcm, Inc., 

are located in the following cities : SALEM 

HARTFORD „„ .^ nrtCTrtM SiSI^'^ECTADY 

LAWRENCE 29 IN BOSTON f^fr^ haven SPRINGFIELD 

LYNN NEW BEDFORD ^vba..,.. 

LOWELL _A TAWTUCKET 

MANCHESTER (N. H.> GYt>-^ PROVIDENCE 

■" "'" ^~" ROCHESTER (N. Y.) 



LOWELL 

manche: 

NEWARK 



arniiNC^K EL 

SYRACUSE 

TROY 

WALTHAM 

WATERBURY 

M/nor-rc-rtTo 




Fig. 20. — A good example of institutional chain advertising. 



fifteen outside cities. The idea behind this is that many people 
outside Boston read the Boston papers, and that these people 
will see the advertising when it appears in these papers. Two^ 
weeks later they would see the advertisement in their own home 
town paper and by force of repetition the advertising appeal 
would be so much the stronger. 

This is strictly institutional advertising. It does not aim to 



ADVERTISING 173 

sell any goods or increase the sales of any one store. It is designed 
to present to the public the idea of the system. It will serve 
eventually as a background on which merchandising advertising 
to increase the sales of some of its products can be done. 

There is nothing cheap about the make-up of this advertise- 
ment, as is the case with so much newspaper advertising. This 
goes as far towards quality advertising as is possible in a news- 
paper. The eye is instantly attracted by the decorative border 
and the novel introduction of a column of reading matter by the 
side of the regular advertisement. 

The Piggly Wiggly Co. has set out to sell the public the chain 
store idea and more specifically the Piggly Wiggly Co.'s own 
methods of self-service operation. Too many people believe the 
sole advantage of the chain is its lower price. 

The following is an example of Piggly Wiggly advertising: 

''Piggly Wiggly is a system of merchandising that provides every house- 
keeper with a well-ordered pantry that she can go to any time between 
7 a.m. and 6 p.m., Saturdays until 10 p.m., and there select with her own 
hands those articles of food that she may of her own mind want to select. 
More than one thousand different items are to be found in every Piggly 
Wiggly store. 

'' Money. You save from 10 to 20 per cent on every article purchased at 
Piggly Wiggly. A regular patron will save from $8 to $30 a month without 
sacrificing either quantity or quality. 

''Time. You save time, energy, and patience as you wait on yourself 
and don't have to ask the price of any article, as a swinging price tag indi- 
cates the price. You don't have to ask about any article, as only nationally 
known products are to be found on Piggly Wiggly shelves. You don't 
have to listen to Mrs. Hard-To-Please or Mrs. Haggler, as they have no 
one to argue with. 

''Health. The most precious thing in the world. You can see with your 
own eyes that the goods are clean, that the surroundings are clean. Some 
of the goods are in air-tight cartons, others are weighed and sealed in pack- 
ages of different weights by automatic machines without a human hand 
touching them." 

The above is a good example of what a live chain can do in the 
way of advertising. It aims to make permanent customers 
rather than transient customers attracted merely by the price 
feature of the week. 

Some of the headlines from the Piggly Wiggly advertising are 
interesting as showing the continued stress on novelty and arous- 



174 



CHAIN STORES 



ing the interest of the pubHc — so contrary to ordinary chain 
advertising policies. Some of them read as follows: 

Hallelujah — Triplets at Last. 
A Royal Princess is to be Born. 
1492— A Memorable Day it Was. 
The Piggly Wiggly Price List. 
Music, Flowers, and Women. 
The Piggly Wiggly Beauty Contest. 
Something is Going to Happen. 



iual 

arm 

lin? 

ibu. 

ects 

ma- 

^L. 

;s. 

rod- 

•OP6, 

east 

send 
»ps," 
ould 
oods 
such 
tho 



to 

•d 



YOU CAN ALWAYS 
SAVE MONEY BY WEARING 

WL DOUGLAS SHOES 

SOLD DIRECT FROM FA£JOKt 

TO \DU AT ONE PROFIT 



W.L.DOUGLAS 



FOR MEN 

AND WOMEN 



STAMPING THE RETAIL PRICE 
AT THE FACTORY 

T 




$7^&$8i2 SHQES 

ALSO MANY STYLES AT $^.00 ^ $^ .00 

V/HKN YOU BUY W. L. DOUGLAS SHOES 
CONSIDER THE EXTRA QUALITY YOU 
RECEIVE FOR. THE PRICE PAID 

WL J^ouglas shoes are made of the hest and finest 
selected leathers the meurket affords. We employ 
the highest paid,skilled shoemakers, all working 
with an honest determination to make the best 
shoos for the price that money can buy. 
Whon you need shoc^ look for a W.L. Douglas 
store. We own 108 stores located in the principal 
cities.You will find in our stores many kinds and 
styles of high-class, fine shoes that we believe 
are better shoe values for the money than you 
can buy elsewhere.Our $ 7.00 and $8.00 shoes 
are exceptionally good values. There is one 
point we wish to impress upon you that is 
worth dollars for you to remember. W. L. 
Douglas shoes are put into all of our stores at 
factory cost. We do not make one cent of 
proBt until the shoes are sold to you. When 
you buy shoes at any one of our stores you 
pay only one tmall retail profit. 
No matter where you lire, shoe dealers can 
supply you with WL.Douglas shoes. They cost 
no more in San Francisco than they do in Ne w^ 
York. Insist upon having W.L.Douglas shoe^ 
with the name and retail price stamped on 
the sole. Do not take a substitute and pay 
one or two extra profits. Order direct from 
the factory and save money* 




M.00&«4i0 



el 

and portrait Is the beat 
known ahoe Trade JULark 
in tlie Tvorld. Itstamis 
for the highest standard 
of quality at the lowest 
i>06sible cost. 



Catalog; Free* 

Preiidtnt if 
W. L. Dougia* Shoe Co., 
;i10 Spark St, Broekton, Mata, 



Fig. 21. — Type of national advertising done by W. L. Douglas Shoe Co. 



Each of these headhnes is designed to attract interest. Only 
one of them mentions price. All of them are selected to attract ^ 
the attention of the reader. 

2. Merchandise Advertising, — This is confined mainly to 
emphasis on price. Figure 21 shows the form of advertising 
used by the W. L. Douglas Shoe Co., a form which has 



ADVERTISING 



175 



WEEK END MARKET SPECIALS 

PORK 



PORK LOBN ROAST 

4 to 6-lb. Cuts 

Cut from Young Corn Fed Pigs 
Vz or whole strip 

CHOPS "^o'lfL?"" lb. 27c 



19^ 



BEEF 



QUALITY CORN FED ROASTS 
^ ^ BONELESS CHUCK 

Boneless Sirloin lb. 38c 

Rib Roests |b. 30c 

Face Rump . . . , Jb. 27e 

Chuck Rout M lb 18c 



20i 



SWEET FLORIDA ORANGES- Good Size, Doz. 32o 

C 

lb. 



STEAKS 



Quality Corn Fed Beef, All Round, 

Sirloin or Face Rump 
Porterhouse, Rump or 4QC 



Top Round. 



, .lb. 



27 



LARGE RIPE YELLOW BANANAS. Doz. 35c 



BUHER 

MEADOWBROOK 

CREAMERY 

Cut From Tub 

OUR A e#% «b' 

BEST *r^5f 



FISH 



Stealc Cod lb. 15c 

Shore Haddoclc. .lb. lOc 
-Cape Scallops.. pt. 36c 
Rallbit to fry or boil, 

lb .....25c 

Cod Bits 2 lbs. 25o 



NEW EGCS 

The Famous 
Meadowbrook Brand 

60c Doz. 

SAVE I5e DOZ. 



FRESH LEAN CHOPPED STEAK, 2 lbs. 25c 



MOHICAH MILD CURED 

Boneless Stickers 

Thick Ribs 20c lb. Lean Flanks To 



12 



IC 

,2lb. 



HEINZ BAKED BEANS 10c Can. Reg. Pr. 15c 



FOWL 



FRESH KILLED 
MILK FED 

2Vt to 3-1 b. Av. 



31 



POUNDCAKE 
C 

lb. 



Dark Fruit 
Plain 
Marble 
Raisin 



25 



COFFEE 

Mohioan Dinner Bi«nd 
in Bean or 
ground to 
suit. 



25 



OLEO 

27f 



Swift's 
Premium 
Gem Nut 
2 lbs. 490 



ROXBURY 

2152 Washington I 

WALTHAM 

2ff Moody St 



Mohican 

MARKETS 



BOSTON 

96 Washington 

SO. BOSTON 

423WestBroadway 



Fig. 22. — Common form of local newspaper price advertising. 



176 CHAIN STORES 

been used by them for many years both nationally and in local 
papers. The price appeal is stressed, with quality and durability 
slightly second. 

Figure 22 shows the most common form of chain advertising, 
namely a price list. This particular advertisement is arranged so 
that certain items stand out more than others. 

When it is a case of institutional advertising, the same copy 
may be used in many cities, in fact everywhere. The appeal of 
the copy is universal. But when it comes to merchandise ad- 
vertising a new element enters the equation. Conditions are 
frequently not the same in different cities. For example, take 
the case of a cigar store chain. In some cities it has tp compete 
with local cigars which prove very strong competition. The 
character of the local advertising must take this into considera- 
tion. Again the wants of the community vary. The stock of a 
store in New York would be different than that of one in California 
or Florida. Thus, the character of the merchandise advertising 
depends a great deal on the size and distribution of the chain 
branches, and also on the policy of the company. 

One shoe chain standardizes all its advertising while one of its 
direct competitors allows the local manager to spend a certain 
amount. The result is that the former concern has a great deal 
to show for its advertising while the latter concern has never 
been able to teach its salesmen to be successful advertising 
copy writers. 

Advertising Policies. — The advertising agency has taken a 
definite place in the merchandising program of the average 
manufacturer, but its place in the chain field is not yet clearly 
marked. Most agencies show a tendency to keep away from 
local copy and much of the chain store advertising is necessarily 
local copy. The advertising should always be governed to a 
great extent by the particular facts as they exist in the various 
communities. Institutional advertising for chain stores has 
been handled and is handled in excellent fashion. But when it 
comes to merchandise advertising, the chain management seems^ 
to prefer someone directly connected with the organization and 
its conditions to do the work. 

If the appeal of the advertising can be universal, the agency can 
be used to advantage. If it is necessary to watch local con- 



ADVERTISING 177 

itions, it would hardly be economical to use an agency, on 
iiccount of the money expenditure which would be required to 

scertain the exact local conditions. The chain itself is in a far 

3tter position to do this. 

The chain may find it advisable to employ a contact man to 
look after local conditions and to keep traveling constantly with this 
purpose in view. By means of sales records, the management is 
in a good position to judge the strength of the competition, and 
the contact man verifies the opinions of the local managers and 
analyzes the situation. 

The chain is constantly facing the following problem in its pub- 
licity: it wishes to find a basis of publicity common to all stores, 
yet it must take into consideration the status of affairs in the 
various cities and towns where the stores of the company are 
located. Each local manager doubtless knows best what condi- 
tions are, but that local manager is not an advertising man and 
never will be. He is hired as a salesman and unless he is a sales- 
man first, last, and always, he is not going to make good on his 
job. But for the very reason that he knows local conditions so 
well, he may not be able to analyze them so well as an outsider. 
Hence, the value of the advertising agency as a specialist in adver- 
tising problems as contrasted with selling problems. 

Some chains have tried a scheme whereby the advertising is 
blocked out at headquarters and space left for the local manager 
to insert local copy. At best this is dangerous policy because the 
local manager may or may not be competent to do this. Some 
chains ha.ve a number of advertising men attending to districts. 
If competition is particularly strong in some city, they have 
authority to run advertising more frequently. They take care of 
all space buying and positions in the papers. 

Cooperative Advertising. — With the closer contact between the 
chain store, as a retail outlet, and the manufacturer has come 
the question of cooperative advertising. Both the chain and 
the manufacturer stand to benefit by this. Figure 23 shows the 
method in which the manufacturer's product and the chain's 
product were tied up together in a window trim. This was a 
direct outcome of the growing policy of manufacturers to spend 
thousands of dollars to get retailers to cooperate and concentrate 
in a selling campaign. 

12 



178 



CHAIN STORES 



One progressive chain, and the same facts hold true in other 
cases, gets a special discount from some manufacturers, especially 




Fig. 23. — Form of cooperative window advertising. 



of a hitherto unknown item, to cover part of the cost of the 
advertising. '^ Every week, ^^ says this chain, ^^ we have a full page 
in the three local papers and two columns in the paper of each of 
the towns in which we have a store. Part of this space is, of 



ADVERTISING 



179 




OUR BIG FALL 

CANNED GOODS 

SALE 

35/0 OFF! 



BIG stocks— BEST goods— LOWEST 
prices. First -choice of the new 1921 
pack— at 354, off 1920 costs. 

These prices make Early Buying PAY! 



Com 



can 10c 



i^^^ -Golden Rom" ___ 

I^Orn t«tr«F«.cr Main. Pock can 



16c 



Co] 



rn 



can 20c 



Peas 



14c 



Peas 



Do»enS2.69 



Tomatoes 



10c 



IomatoesDoz.$i.73 ''^;^ 15c 

Cond. Milk "Standard" C an 16c 
can 22c 

; No. 2 can 24c 



Peaches 

Pineapple sn^.T'o'^^nlirs 
Pineapple c5r^*D"„--r,^.„ No. 2 can 21c 
Pears Fancy New York 6 for $2.23 can 38c 
Sardines '*'"DoT"»r4°7*^ can 121c 
Raspberries or Strawberries |,'^ 30c 



15c 



Tomatoes 



"Goldeo Ro««" 

Doz.$2.69 N^:i» 



23c 



String 



Beans ^S^^ 



17c 



String Beans 



"Golden Ro«e" 

Whole Ref. 

Doien 82.95 



25c 



, tall can lOc 



Salmon o^L^'u'^i taU can 25c 



C 1 'Goldei 

Salmon ,\^ 



__Rom" i4n/.l-2lb.c&n 
lb. Cn '»"<• 6 for 
$2.35 $1.47 



25c 



EYap.Mak .'::H^^111c 



No. 3 can 20c 
Asparagus Tips 6 for $2.03 fu, om 35c 
Pork & Beans, ''%lt':^^" ''eJ 19c 
Pork & Beans, "^t^'^'iT," 'Si.' He 
Crab Meat! lb. can 38c 1 Ib.can 75c 
Sauerkraut, 6 for 88c can 15c 



45E 



CHEESE lb. 29' 

White or Young America Type 



EGGS. 



Tine Groye" 
Fancy Selected i W0nr 

'Wm. Elliott" Extra Fancy Fresh, Pot. e9c 



K|/'\^P', Owing to the frequent market changes, we cannot guarantee the price of Egg^ 



■^* All other prices guaranteed for the entire week. 



TEAS 



"Golden Rose" Finest Selection, Delicioos Flavor, Air-Tight 
Pickaees. OOLONG, MIXED OR ENGLISH BREAKFAST 
(ORANGE PEKOE CEYLON. Lb. 49c) 



45c 



Coffee1,%nb. 29c|CoffeeAiSEN- lb. 39c 



A Choice Old Coffee At Popular Price 



Perfect Blend Old Crop Coffee 



MACAROON SNAPS 



A DcUgbtf ul B>.< 



Sale Price for ThU Week 



lb. 19c 



DDITMrC New Crop, Fancy Santa Claras, «0:70 
rivUnLa several cars Just Received ib.' 



14c h 67c 



mi 1 11/^ D^Ai^fl "Golden Rose" m Wax Paper Large Loaf 1 Ol^ 
mllK DreaU, FromOurOwnDaylightBakeshop 1 lb. 5 oz. i^zC 

TIieGlNTER.Ox 

Stores Everywhere-Boston and Suburbs 



Watch Ginter Co.'s Newspaper Advettisemfint in Boston lepers 
for our Spedal Weekly Sales 



Fig. 24. — Counter leaflet featuring price. 



180 CHAIN STORES 

course, given over to whatever the new item may be, to a new 
brand of canned meat, of a pumpkin flour, or a pancake syrup, 
etc. Chain stores demand all the discounts they can get and we 
are close buyers. This saving, small in itself, is of considerable 
importance when figured over the period of a year.'' 

Although this movement has not attained as yet any wide 
. proportion, it is always worth while watching developments, ready 
to take advantage of them when favorable opportunity offers 
itself. 

As an example of a possible method of advertising, the hand- 
bill has been occasionally tried. This may be distributed from 
house to house, wrapped up with merchandise, or left on the 
counter for the customer to pick up. Figure 24 shows an excel- 
lent example of such a handbill, in this case got out weekly by a 
the central office and delivered to the stores. 

Conclusions. — Poor as the average advertising of the chain 
store has been, it has been immeasurably better than the average 
of its independent competitors. This independent has been at 
a tremendous disadvantage for, with the exception of very small 
communities, it did not pay to advertise in the papers. In 
some cases, it has been attempted to overcome this handicap by 
a cooperative campaign with a slogan such as ^^ Patronize Your 
Neighborhood Store.'' But whatever effect such a campaign 
may have, it can never become dangerous to the chain until the 
neighborhood store is able to compete with the chain on its own 
ground of price. 

The future of chain advertising will be directed towards the 
chain competitor rather than towards the independent. Chain 
advertising is yet in its infancy. Chains are only just beginning 
to feel the necessity of advertising. Previously sales have come 
in without the necessity of spending money on publicity to make 
them come in. In the same way that chains are extending their 
services, they are extending their advertising. Customers must 
be induced to enter the store and if they do not pass the store in 
sufficient numbers to secure adequate turnover, the advantages 
offered by the chain must be conveyed through some advertising 
medium, such as the local newspaper. 



CHAPTER XII 
ORGANIZATION 

Outline 

The chain store executive. 

1. Characteristics. 

(a) Started chain himself. 

(6) Rose from ranks. 

(c) Possesses executive quaUfications in high degree. 

2. Functions. 

(a) Supervisory. 

1. Follows up store records, sales, etc. 

2. Sees that all parts of machinery function properly. 

(b) Initiatory. 

1. Expansion program. 

2. Merchandising policies. 

3. Miscellaneous. 

3. Sources of information. 

(a) Digested records. 

(b) Able assistants. 
The district manager. 

1. Functions. 

(a) In charge of group of stores. 

1. Travels and visits each at regular intervals. 

(b) Supervises taking of inventories, etc. 

(c) Consults about disposal of stock, etc. 

2. Requisites. 

(a) Loyalty and honesty. 

(b) Ability to teach from own experience. 

(c) Thorough knowledge of merchandise and its adaptation. 

1. To needs of community. 

2. To time of year, day of week, etc. 
The store manager. 

The clerk. 
Specialized functions. 

1. Buyer. 

2. Window trimmer. 

3. Realty expert. 

4. Advertising manager. 

5. Accountant. 

6. Merchandiser. 

181 



182 CHAIN STORES 

"Remuneration of personnel. 

1. Executives. 

(a) Paid out of profits or gross sales. 

2. Managers. 

(a) Fixed minimum salary. 

{h) Bonus on volume of sales above minimum. 

3. Clerks and salespeople. 

(a) Flat rate. 

1. Poorest results. 
(6) Some form of commissions payment. 

1. Immediate improvement. 
Methods of payment. 

1. From home office. 

2. By local manager. 

(a) From contingent fund. . 



a 



CHAPTER XII 
ORGANIZATION 

The greatest strength of the chain store and its greatest weak- 
ness he in the character of the personnel. Few executives have 
shown greater foresight, greater financial ability, or greater 
merchandising sense than the executives of the great chain 
systems. Woolworth, Kresge, Whelan, and Penney are names 
to conjure with in the business world. If it is true that the 
success of their respective chains is due to system, it was also 
true that they created the system, and that without their 
guidance, the phenomenal growth of these particular chains 
would not have taken place. 

But the weakness of the chain is equally apparent when the 
last links in the chain store are reached, that is, the clerks. 
Where, in the majority of cases, goods are sold which require 
no sales effort on the part of the clerk, it has seemed superfluous 
to expect intelligent cooperation along sales lines from these 
people. Yet this assumption has always proved mistaken. 

However little attention on the part of the clerk is required 
to sell the goods, courtesy and service have been found to exert 
a tremendous influence. And it is undeniably difficult to handle 
these clerks from a central office, perhaps hundreds of miles 
away, even through the medium of a store manager, and the 
supervision of a district manager. 

The sharper the competition, and the greater the price appeal, 
the stronger becomes th tendency to lay stress on methods and 
not men. If all the initiative is mobilized at headquarters, and 
managers and clerks become mere automatons, ambition, per- 
sonality, and the progress of the chain through its branches is 
retarded, if not stopped altogether. 

The Executive Functions. — There are some very definite 
points which appear at first sight in regard to chain store 
executives. 

183 



184 CHAIN STORES 

1. They have risen from the ranks. They started behind the 
counter and learned the business from the ground up. 

2. They rarely shift positions, except perhaps to start in for 
themselves. 

3. The road to promotion is clearly marked. In the United 
Cigar Stores, a man starts in as clerk, becomes store manager, 
then district sales manager, superintendent, and finally assistant 
vice-president with membership in the directorate and title of 
vice-president. This company follows a conscious policy of| 
building up executive ability. For example, the directorate 
is composed of the chairman of the board, the president, the] 
acting president, and fourteen associate directors, each on 
of whom is at the head of a department. According to President 
Wise, their fundamental need is capable executives, and he 
says this is especially true of an organization divided into such 
a large number of units, each of which functions as an individual 
entity. Thus this company finds proper management possible 
only when the board functions directly through the heads of 
the departments. 

The United States is divided into five districts and each district 
is put in charge of an assistant vice-president who is traveling 
constantly. Directly under them are the district sales managers 
who are in much closer touch with local stores and conditions. 

The number of necessary links between the executive and the 
retail store ordinarily varies directly with the size of the chain. 
As long as it is possible, the chief executive keeps in touch with 
member stores, but as soon as the stores multiply his information 
concerning them must be gathered by intermediate links who, 
in addition to performing policing functions, sift information and 
deliver it to the central office. 

In general, the executive functions of the head of a chain 
store system are two: 

1. He must supervise the machinery which he himself or 
others have set running. He must see that nothing gets out of 
order; he must follow up indications on the daily executive 
report; he must be the court of last resort in case of disputes 

2. He must initiate ideas and sift out the best schemes from 
all those submitted to him by his subordinates. Ideas count in 
chain store organizations as everywhere else. The continued 



)f 

1 



ORGANIZATION 



185 




1^^^^ . 



-^^^l^^i 111 












186 CHAIN STORES 

success of a chain store must always be modeled on its ability 
to keep one step in advance of its independent competitors, and 
the ultimate responsibility for this rests on the shoulders of 
the executive. 

Owing to the policy of promotion employed in chain systems, 
namely, that of merit, it is rare to find a chief executive who is 
not surrounded by a group of able men. Figure 25 shows the 
apportionment of the various operating functions in a Canadian 
grocery chain. 

The executive of the chain has two methods of getting informa- 
tion, the one supplementing the other: 

1. From the daily records, which keep track of stock and sales, 
allow leaks to be traced, and help train clerks in habits of accuracy 
and honesty. 

2. From the men directly reporting to him and with whom he 
consults regarding the company's policies. In the days when 
Mr. Whelan was actively connected with the United Cigar Stores 
he allowed himself but one vote at the regular weekly board 
meeting. If he advocated a measure at one meeting, which was 
adopted, several meetings later he would attack the measure 
from some other angle. 

The executive reports, as illustrated later show how all 
information is digested in tabloid form for the executive. 
This is in line with the accepted theory that an executive should 
not be immersed in detail. His business is to find subordinates 
who can do the detail work for him. It is an excellent thing, 
of course, to have the executive deal in percentages but, before 
leaving this point, it would be well to remind the reader again 
that only through an infinitesimal knowledge of all the detail 
connected with the business is it possible for the executive to 
grasp the true significance of the percentages. 

Traveling Superintendents. — As soon as a chain attains moder- 
ate size, the executive must delegate some of his functions. He 
promotes one of his store managers to take active charge of a 
group of stores, to visit them daily, or at least several times 
weekly, to advise with them as to their problems, and to see that 
everything is right. A district manager in the United Cigar 
Stores is in direct charge of about fifteen stores in one city or an 
appropriate number in a more scattered locality. Assignment 



I 



ORGANIZATION 187 

of stores to a manager is made on the basis of traveling facilities 
and distances between stores. These men are given careful 
estimates of what sales in each store should be, and it is one of 
their duties to consult with the store managers as to methods of 
attaining or exceeding these quotas. 

These traveling superintendents often report directly to the 
chief executive, although in the largest chains this is impossible. 
George H. Hartford, the founder and creator of the Great Atlantic 
& Pacific Tea Company, for many years made it a point to see all 
his traveling superintendents in person. He was not satisfied 
to accept their reports but often dropped in on the store of the 
chain nearest the place he happened to be. He always called 
on the local store where he spent his vacations. 

Where the chain is not large enough to hire special inventory 
men, the traveling superintendent must himself make periodic 
inventories of the stores in his district. Naturally, a man who 
is chosen for this position must have certain qualities : 

1. He must be loyal. His opportunities for speculation and collusion are 
naturally broad; but it is to his credit that few cases of dishonesty are 
recorded. 

2. He must be a good salesman. It takes a higher type of salesman to 
teach others how to sell than it does to sell in person. 

3. He must know his merchandise. With his broader knowledge of 
conditions and wider experience, he should be able to help the store manager 
with many of his stock problems. 

These traveling superintendents, or district managers, or 
whatever they are called, meet at stated intervals and discuss 
matters of general importance. They talk over policies which 
have worked or failed to work, go over sales campaigns, etc. 

These men are directly in line for promotion, and have every 
interest in furthering the progress of the organization. They 
are the direct links between the managerial and the retailing 
functions. 

The store manager and the clerk have been discussed in sepa- 
rate chapters, but nothing as yet has been said about methods 
of payment and remuneration for the various grades of em- 
ployees. Before we take this up in detail there is one further 
point to discuss in regard to the personnel. 



188 CHAIN STORES 

Specialization. — The larger the chain store becomes, the more 
profitable it is to divide and sub-divide functions among special- 
ists who are experts in their own lines and receive large salaries 
for the work they do. 

For example, the proprietor of a small chain probably does 
the buying himself, sees to the window trinfis, prices articles, 
and, in brief, does most of the work himself. Soon he finds it 
necessary to have someone do his purchasing for hkn. He does 
not have time to look out for it. Next, he has to get a bookkeeper 
and perhaps an expert accountant. As his chain grows, his 
staff of experts becomes larger. Someone has to look after the 
advertising. Finally, he has to have someone to take charge of 
the real estate. 

The number and the functions of the specialists vary with 
the type of chain. Most chains have traveling auditors who drop 
in at intervals and audit the individual stores. One large bakery 
chain employs traveling bakers and traveling merchandisers 
who operate out of the home office and are not attached to any 
given district or territory, but make the rounds of the entire 
country. 

. The aim is always to keep organization costs down to the 
lowest possible point, based on experience, which is figured on 
a general maximum production as against a general minimum 
payroll. The specialist must demonstrate the worth of his serv- 
ices or he is dropped. That is, the real estate must prove a good 
investment, the window trims must sell goods, the house organ 
must instill an esprit de corps throughout the organization, etc. 

Remunerating the Personnel. — How shall a man be paid what 
he earns? Few men are satisfied with a fixed salary unless there 
is opportunity ahead. The chain organizations have probably 
worked out the most logical and best functioning methods of 
remunerating employees yet evolved. In general, the following 
principle is put into effect: After a store attains a certain quota, 
the manager gets a certain percentage of all sales over this 
amount. The district managers are rewarded from earnings 
made by district stores. 

To take a specific example, the Woolworth chain pays cash 
salaries to the founders, the stenographers, and the clerks. 
Everybody else gets paid on the basis of yearly earnings. The 



ORGANIZATION 189 

officials in the head office at New York are paid on the basis 
of earnings made by the entire organization. The district 
manager of each of the eleven districts is paid on the basis of what 
his district earns. The manager and the assistant manager take 
a certain percentage of what their particular store earns. Each 
man gets his full share of profits. Every employee receives 
a cash bonus after being with the company for one year, and this 
is increased by the same amount each year for five years. If a 
girl leaves to get married after being with the company three 
years, she is given a cash wedding present. 

In the New York Department of Labor investigation of the 
employment of women in five- and ten-cent stores, it was found 
that ^Hhe manager works on a drawing account and receives a 
percentage of profits on sales at the end of the year. The 
percentage of his profits is apparently a matter of individual 
bargaining between the central or district chain office and the 
manager himself, although in some cases percentage rates are 
fixed for certain class stores. Under this system, the manager 
very naturally has every incentive to put his store on a paying 
basis, realizing that his own earnings depend upon the number 
of dollars in profits the store succeeds in making.'' 

The United Cigar Stores never give a share in the profits 
of the store but base extra payments entirely on sales. This 
rule is made so that the clerks may not be induced to sell the 
goods with the most profits in them. Each head clerk receives a 
certain percentage of receipts for his share of the business, while 
each clerk receives a salary commensurate with what he sells. 
The success of this method of payment is plainly demonstrated 
by the fact that the labor turnover in this concern is small. 

In the March, 1921, issue of ^^Administration,'' President Wise 
goes into further detail. Among other things, he says that 
in paying men for their services, the company does everything 
possible to increase their earning capacity. The stores work for 
business on a monthly rating. In addition to fixed minimum 
salaries, commissions are paid for increased volume. Ratings 
are so figured that extra compensation is earned as sales increase. 
In addition, there is a bonus which it is planned to give employees 
who rank above store managers as an incentive to increase 
business in stores under their supervision. 



190 CHAIN STORES 

The total volume for the year is arbitrarily computed and 
month by month vouchers are distributed, based on this volume. 
Vouchers have a money value which increases as the amount 
aimed at is reached. Mr. Wise believes that this is the most 
scientific method of profit sharing yet evolved. 

The Piggly Wiggly Company's method of paying its employees 
is interesting. One of its stores employs ordinarily from two 
to three men, with five men in the big stores. All employees 
receive regular salaries. In each store there is a salary allowance 
of three per cent, on gross sales of $2,000 per week and one and 
one-half per cent, on everything over that. Out of the percent- 
age allowance the salaries must first be paid and then the remain- 
der is distributed equally among the employees. 

For example, if one of their stores did a business of $4,000 
in one week, the amount available for salaries would be $90, that 
is, three per cent, on the first $2,000 and 13>^^ per cent, on the last 
$2,000. If there were three employees, one receiving $30, the 
second $25, and the third $20 a week, the pay roll would be $75 
a week, leaving $15 to be divided, or $5 for each employee. 

A fairly large cash-and-carry grocery chain gives all its men 
a salary and one half of one per cent, of the gross sales in their 
stores. Previously the men had been given a bonus at Christmas 
but this policy was abandoned in favor of the per cent, on sales, 
paid quarterly. The manager can see with his own eyes just 
what he is making at any time. 

One of the ofiicials of this chain says: ^^We don't underpay 
our clerks. It isn't safe. They're handling our money, and if 
we don't give them enough to live on, it practically forces them 
to be dishonest. We have very little trouble with dishonesty. 
Also, our labor turnover is small. Some of our managers have 
worked for us from ten to fifteen years." 

In another grocery chain, managers are paid on a basis of 
say $30 to $35, with a commission of one per cent, after their 
salaries at $35 a week equals sales on an agreed percentage basis. 
In such cases as these, salaries range from $50, which is about the^ 
lowest, to whatever amount of business the manager can transact. 

Helpers may obtained as high as $17 to $25 a week, depending 
largely on the report made of them by the manager. Although 
$25 is high for this class of labor, it attracts an excellent grade 



ORGANIZATION 191 

of man, who is directly in line for promotion to manager in 
another store. 

The examples given are typical of the majority of chains. 
Executives and specialists receive high salaries, which is counter- 
balanced by the comparatively low salaries paid managers and 
clerks. 

The Penney Plan. — J. C. Penney, head of a chain of 313 dry 
goods stores in the West and Middle West, has a scheme for 
remunerating his personnel which has received wide publicity 
and a description of which is well worth reproducing here. We 
quote from the Dry Goods Economist of May 5, 1920: 

^^The Penney plan may be summarized by calling it an original 
principle of organization in management, founded upon a real belief 
in the inherent honesty of human nature and the idea that -nothing 
stimulates a man like the knowledge that hard, intelligent work will 
bring a certain and substantial reward. This plan results in an intensive 
cooperation in the passing on of a man's knowledge and qualities of 
leadership to his helpers in the business, and an endless chain of the 
development of the individual. 

^'The plan involves the stimulation of the growth of each new store 
until its owners are able to start up another, which in turn will send out 
other branches. The stock of the parent company is classified by 
stores and a separate set of books is kept for each store. 

''Mr. Penney owns all the stock of Store No. 1. In Store No. 2 
he owns % and the manager J^. In Store No. 3 he has }4j his partner, 
the manager of Store No. 2 has H and the manager of No. 3 the other 
J^^. Suppose it is decided that Store No. 2 shall start a new branch, in 
charge of a man who has shown partnership caliber. Mr. Penney re- 
tains H interest, the new partner getting the other J^ Mr. Penney held. 

''This Store, No. 4, later starts a fifth store in which it is desired that 
the manager shall have an interest. Then Mr. Penne}^, as the senior 
partner drops out, takes none of the new stock, so that the stock in that 
store is held in equal shares by its manager, the manager of Store No. 4, 
its parent, and the manager of Store No. 3. Mr. Penney, of course, 
retains his interest in the other four from which he may start branches 
in which he will have a share. 

"Mr. Penney is constantly training new men for partnership. The 
men who are admitted to this partnership pay for their interests out 
of their earnings. There are stores in the chain in which Mr. Penney 
holds no stock, there being room for but three partners, but it is not his 



192 CHAIN STORES 

idea to appropriate all of a good thing. He prefers to have a number 
of stores in each of which he owns a part interest, rather than a few 
stores in which he owns all the stock, and, as store after store opens new 
branches, the number of these part interests increases. 

^^The men in charge of these stores never fear that someone they are 
training will come up to supplant them. They give these men every 
encouragement and assistance, for the sooner they develop men able to 
manage a store, the sooner will there be another store in which both will 
share the profits. In other words, under the Penney plan it is not a 
matter of starting a store and then looking for a manager. The manager 
is made first and then a store is made for him to operate. 

^^The common stock is numbered in series according to the number of 
the store which it represents. The owners of store No. 10 will hold 
series No. 10 stock. Every time a store is opened a man is advanced to 
partnership, and five other men, all of partnership caliber, are taken into 
the company. 

^^The initial salary is small, for a good reason. When a man must 
make a small salary stretch a long way, he works all the harder to 
reach the point where he will become a sharer in dividends. And the 
economy he learns while living on little is as useful in handling the 
income of a store as of a home.^' 



The Penney plan of remunerating employees by making them 
partners in the business has succeeded in this chain. How far 
the same principles could be extended to other chain fields is 
problematical. As far as is known, the plan introduced by Mr. 
Penney goes farther than any other in allowing the employees to 
obtain a share in the business and active participation in its 
management. 

Remunerating Sales People. — In the very first instance, it is 
necessary to distinguish between a clerk with no prospects, or at 
least very faint prospects, of advancement, and a sales clerk in 
direct line for a local managership. Some chains find it necessary 
to employ a great many sales people, mostly girls, who merely 
work for the salary they obtain. Other chains find it possible 
to make the salesmen they employ constantly interested in their, 
work by the knowledge that as soon as they have made good 
they will be promoted. 

The second point to note is the authority of the store manager 
over his selling personnel. Ordinarily, the number of clerks 



I 



ORGANIZATION 193 

employed in a chain store is small compared with other retail 
stores, because of efficient management, more specialized stock, 
etc. Stores may be so small that the manager can run them 
alone with occasional assistance. The five- and ten-cent stores 
are by far the largest employers of cheap sales help, and have 
found the labor problem particularly perplexing. 

Local managers are ordinarily allowed to hire their own help 
provided the payroll is kept within certain percentage limits 
in relation to sales. This percentage figure may come as low as 
eight per cent, in the larger chains and as high as 14 per cent, in 
the smaller chains. The payroll, by means of hiring extra 
workers for Saturdays and holiday seasons, is kept at a fairly 
constant figure, a deficit during the slack season being made up 
by a surplus at Christmas. 

The old method of remunerating sales girls used by five- and ten- 
cent store chains has been to pay what the labor market required 
at the moment, and no more. This, of course, brought with it an 
exceedingly high labor turnover. The five- and ten-cent store was 
the last resort when out of work. Naturally this caused a very 
low degree of efficiency in the sales force. 

Conditions are now changing. The progressive chains have 
come to see that even the policy of 'letting the goods sell them- 
selves" can be overdone. In the past, managers have often 
complained of difficulty in keeping within the percentage limit 
allowed them for labor. It has been hard to convince the local 
managers that it pays to teach the clerks better selling methods. 
The worst temptation the chain manager has to face is the 
availability of cheap help. One grocery chain found it possible 
to get men or boys to work from two until six and all day Satur- 
day for $5 a week. An assistant of this sort sweeps the floor, 
washes the windows, packs away the supplies, and generally 
reduces store overhead. 

But facts and statistics have been tabulated which seem to 
prove conclusively that higher paid clerks, even in five- and ten- 
cent stores, are a good investment One chain in particular has 
conducted a regular campaign to educate its managers in regard 
to the benefits of better paid clerks. Following is a copy of a 
notice sent to managers April 1, 1921: 



194 CHAIN STORES 

Decreasing Salary Per Cent, by Increasing Efficiency 

''The average salary paid salespeople at Store No. X the first three 
months of 1920 was $15.92 per week. The average number of sales- 
people employed was 111. 

''The average salary for the same period in 1921 is $19.29. Number 
employed 103. 

"Salaries for March, 1920, averaged lOH per cent, and for March, 
1921, Sj'z per cent. Is this not conclusive evidence that paying good 
salaries to efficient salespeople is productive of better results than 
cutting salaries and employing second-grade help? 

"Study your own store on the above basis. It should develop 
something of real interest. '' 

Efficient sales service cannot be obtained without the coopera- 
tion of the central organization and the local managers. It 
takes time, of course, to effect such a change as the method of 
paying salespeople. But the trend of the time is in favor of 
better and more scientific handling of the personnel, and this 
development in the five and ten cent store field is directly in line. 

Wage Rates for Clerks. — Sales clerks are ordinarily paid a 
fiat rate. Occasionally there is a wage plus a commission on 
sales, or a straight commission with no wage guaranteed. It 
has been found almost universally true that the flat rate gives 
the poorest returns, as far as sales efforts on the part of the clerks 
is concerned. Wherever commissions are given, or bonuses for 
increased sales, the results are almost immediately apparent in 
the attitude of the clerk and the volume of sales. Some shoe 
stores follow out a plan by which the clerk is given a bonus only on 
goods which the company desires to sell. That is, on staple lines^ 
there is no bonus, because there is little selling effort required. 
On seasonal and special goods there is a large bonus, because the 
selling effort is correspondingly high. 

Generally speaking, the more sales effort is required to sell 
the goods, the higher salary must be paid to the sales clerk. In 
many chains, salaries can be kept low because of the prospect 
for advancement held out to the clerks. In the chain drug/ 
stores, a commission is usually paid clerks for selling private 
brands, or it may be possible for the manufacturer of a nationally 
advertised article to make some arrangement by which the clerks 
arc given a bonus on what they sell of his goods. 



ORGANIZATION 195 

Coming again to the five- and ten-cent stores, it has been 
stated that in the ordinary five and ten cent store, salesmanship 
is at a low premium. The tendency at most counters is to make 
the selling almost automatic. The goods are carefully displayed 
where they can be examined by the customers and the prices are 
clearly marked. Some stores are beginning to try out a plan of 
self-service and the only thing demanded of the salesgirl is 
wrapping and making small change. At other counters, how- 
ever, it is still necessary to display goods, to answer questions, 
and to persuade customers that the goods on hand are exactly 
those desired. Ribbons, stockings, hats and hat trimmings, 
underclothes, etc., cannot approach maximum sales without the 
personal contact between the saleswoman and the customer. 
It is interesting that in three stores the only salesgirls on a com- 
mission basis were those at the music counters, and the difference 
between the attitude towards customers of these girls with their 
obvious desire to sell goods, and the attitude of the general 
salesgirl, who seemed to care little or not at all, was apparent in 
every case. 

Approximately 84 per cent, of the workers in five and ten cent 
stores belong to the selling force, all woraen, with few exceptions. 
In the Department of Labor survey, exactly one-half of the full- 
time women workers received less than $13.49 a week. Two 
thirds of them received less than $15 a week. Ordinarily, the 
smaller the city the lower wage was paid, and this holds true as a 
rule in all chain stores. An assistant or helper in a city store 
is sure to obtain larger wages than is paid for the same service in a 
country store. 

Methods of Payment. — Ordinarily, checks for wages, bonuses, 
etc., are mailed direct from the home office. In some cases, 
however, the local manager pays in cash. It is usual, however, 
in such cases to obtain a receipt from the employee or have him 
sign in a book or on a special form which may be forwarded to 
the central office. 

In some chains, checks for employees are delivered or mailed 
from the central office to reach each branch a day or so before 
pay day. Then the local manager distributes these checks, 
cashing them if the employee desires, the endorsed check serving 
as a receipt. 



196 CHAIN STORES 

In some cases, wages may be paid from a contingent fund. 
Under any condition, canceled checks or receipts from employees 
must be turned in to the central office. If any employee is 
dismissed for any reason, the local manager should be authorized 
to pay directly and immediately. 

Conclusions. — There is a definite form of organization to be 
found in chain systems. Although the actual duties of the 
various grades may differ, there is the common requirement that 
a man start at the bottom and work up. There is also a division 
of functions at headquarters among specialists in various lines, 
such as buying, realty, advertising, window trimming, etc. 

In regard to remuneration, the aim is and should be to reward 
each man according to the work he does, and, for better effecting 
this result, various forms of bonus systems have been introduced. 
In the average case: 

1. The executives receive fairly large remuneration, at least as 
high as they would probably earn if working for themselves. 
This policy is profitable because the executives are the brains of 
the organization, and parsimony in this direction does not pay. 

2. Store managers receive some form of payment beyond a 
fixed weekly or monthly salary. 

3. It has been found that even sales people become more 
efficient if they are given some form of extra recompense for 
efficient sales service. 



CHAPTER XIII 
TRAINING MEN FOR PROMOTION 

Outline 
Promotion policies. 

1. Start in at bottom. 

(a) Learn selling first hand. 
(6) Know stock. 

2. Fill executive positions within organization. 

(a) Train suitable material. 

3. Make promotions on merit. 

(a) Length of service no criterion of efficiency. 
(h) No policy of favoritism. 
The road to promotion. 

1. Clerk. 

2. Manager. 

3. District supervisor. 

4. Executive position. 
Technique of promotion. 

1. Controlled by individual records. 

2. Dependent on 

(a) Results obtained. 

1. Power to make sales. 

3. Shifting men as a form of promotion. 
The employment department. 

1. Methods of obtaining clerks. 
Training clerks. 

1. In selling. 

(a) Policy of the chain. 
(6) Store routine. 

(c) Service to customers. 

(d) Knowledge of product sold. 

(e) Miscellaneous. 

2. Use of model store. 

(a) Arrangement. 

1. Allowance for variations in stock. 

(b) Arrangement of displays. 

(c) Store conferences. 
Desirability of inspectors. 

L To test selling knowledge of clerks. 

2. To test following rules and policies established for clerks to follow. 

3. To collect new selling ideas. 

197 



CHAPTER XIII 

TRAINING MEN FOR PROMOTION 

It is generally agreed that the most difficult problem of the 
chain is to pick out and train its men. As the chains expand in 
size, both of number of member stores and territorial extent 
covered, this problem grows more weighty. A point is finally 
reached where it is necessary to entrust the choosing and training 
of the personnel to a separate department. It is difficult to 
state definitely at exactly what point in its development a chain 
should institute a personnel department. Roughly speaking, 
such a department is necessary as soon as the personal touch, 
which the owner of a small independent store maintains over each 
of his employees, is lost. As the chain grows larger the functions 
of the personnel department will increase. Its duties include: 

1. Selection of employees. 

2. Education and training. 

3. Health. 

4. Service and maintenance of morale. 

Personnel Administration. — ''Personnel administration, '^ ac- 
cording to Tead and Metcalf's Personnel Administration, ''is 
the direction and coordination of the human relations of any 
organization with a view to getting the maximum necessary pro- 
duction with a minimum of effort and friction, and with proper 
regard for the genuine well-being of the worker.^' 

These questions are treated in this and the following chapters. 
Personnel administration is comparatively new in its application 
to the retail field, although for some time it has been used 
with excellent results in industrial concerns. One large chain 
organization with headquarters in New York has gone so far as 
to test its entire personnel for mental alertness. The old process 
of trying out a man on a job was not furnishing minor executive 
positions fast enough to fill the demand. The problem was put 

198 



TRAINING MEN FOR PROMOTION 



199 



up to the Bureau of Personnel Research, an organization con- 
nected with the Carnegie Institute of Technology. C. S. 
Yoakum, the director of Personnel Research for that institution, 
gives the following account of results: 

Figure 26 shows the results obtained. The organization has 
been divided into three groups: Executives, minor executives, 
and clerks. These groups correspond to distinct divisions within 
the company. The scores, and the number of individuals making 
each score, are shown. The highest possible score is 184. Five 



MINOR E<E:CUTIVE 5 



_CL. 



Fig. 26. — Showing the results of a mental test applied to every member of a 
large chain, from executives to clerks. Each circle represents one member of the 
organization. Executives of the company all scored above 60, minor executives 
averaged 119, while in the clerical group average was only 55. (Forbes Magazine^ 
Jan. 21, 1922.) 

clerks, for example, made scores between and 20, while only 
two made scores above 140. In plotting the chart not all of the 
clerks were taken, but only a representative group. If all the 
the clerks were shown the distribution of scores from low to high 
would be in just the same proportion as is illustrated. Above 
the line of the clerks, however, each small circle represents an 
individual. The chart as a whole represents accurately the 
distribution of scores of the company's two thousand employees. 
The executives of the company all scored above 60 in the test, 
and only four fell below 100. The average for the group was 
127. The minor executives ranged all the way from 45 to 166, 
while the average was 119. In this group only seven individuals 



200 CHAIN STORES 

out of thirty-five fell below 100. In the clerical group the range 
of scores was extremely wide — from 3 to 160 — -but the average 
was only 55. Only 15 per cent, scored above 100. The indi- 
viduals composing this 15 per cent, are just as intelligent, just 
as mentally alert, and have just as great capacity for acquiring 
knowledge and skill as have the executives of the company. 
Comparing the averages of the groups, however, it is clearly 
shown that different levels of intelligence are represented by the 
different groups. 

The black dots on the chart indicate that one executive and one 
minor executive left the company because of inefficiency before 
the results of the test were known. The circle marked A indi- 
cates a minor executive who took four years to absorb training 
usually given in one. Circle B represents a man whose position 
is due solely to long experience and training but who will probably 
never go further. C is doubtful but is being given another 
chance. 

As a result of the tests no minor executives were hired unless 
they scored above 80 and between 80 and 100 only if other 
qualifications were specially good. After being in operation ten 
months, Fig. 27 shows results secured. 

One hundred and thirty-three applicants have been examined. 
Eighty-two have been rejected. Twenty-four were automati- 
cally rejected because they scored below 80 in the test; twenty 
others scoring between 80 and 100 were rejected because of low 
score and the lack of any other specially good qualifications. 
The remaining thirty-eight were rejected on other than a mental 
alertness basis. During the same period fifty-one applicants 
were accepted. Two of this number scored between 80 and 100, 
and were hired because of very good recommendations. One 
of these has already been asked to resign because of his ineffi- 
ciency. Forty-nine of the accepted applicants scored above 100. 
Of this number only five have proved unsatisfactory, though 
two others have resigned for outside reasons. Forty-two, or 
82 per cent, are making good and will furnish dependable material 
for the making of future executives. The company considers 
this a very successful ten months of selection. Hereafter the 
critical score will be set at 100. 

Intelligence, of course, is not the only requisite for an employee 



I 



TRAINING MEN FOR PROMOTION 



201 



of executive calibre, but it is an essential qualification. Tests 
for other qualifications are being carried out and are being 
developed. The aim of the inteUigence test is, as Mr. Yoakum 
says ^Ho measure human capacities in observation, in concentra- 
tion, in simple reasoning, in understanding, and in handling ideas 
according to instructions. All of these human intellectual powers 



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Fig. 27. — Of 133 applicants for minor executive positions examined during 
a period of 10 months, 82 were rejected and 51 accepted, of whom 42 are making 
good. The figures at the right represent the number of applicants and the 
shaded parts resignations. (Forbes Magazine, Jan. 21, 1922.) 

become of increasing importance as business responsibility 
increases. '' 

Promotion Policies. — There are certain principles of promo- 
tion which can be applied generally to nearly all chains. 

1. A man must start in at the bottom and work up. That is, 
he must first of all learn to sell goods himself, he must become 
acquainted with his stock, must find out the customers' likes and 
disHkes. In the Woolworth organization every man, from the 
store manager up, begins at the bottom. Virtually everybody 



202 CHAIN STORES 

in the United Cigar Stores organization has served behind the 
counter. 

2. Higher positions are filled within the organization. It is 
a fixed policy in all established chains to fill vacancies from men 
who have actually trained for those positions. The United 
Cigar Stores Company at their main office never allows a position 
to remain vacant for a moment, even during vacations. The man 
below always takes the place of his superior. 

3. Promotion is made on merit alone, not because of length of 
service, influence, or any other reason. Men who do not fit 
eliminate themselves or are eliminated. No man whose personal 
views are at variance with the policy of the organization can hope 
to be promoted. 

The United Cigar Stores Co., with a personnel of 6,500, believes 
there is plenty of executive ability always available. In addi- 
tion, it recruits the ranks of its buyers from the clerks. In 
every chain, good clerks are consistently promoted to be managers, 
and good managers to be supervisors or district managers. 

But there is one class in a chain store organization which 
has little chance for advancement, and this is the girl in the five 
and ten cent store. Opportunities for her are rare. She may 
become a bookkeeper, a floor-walker, a window dresser, or in 
rare cases an assistant manager, but on the whole she has little 
to look forward to in the organization. This is due to two 
reasons, one reacting on the other. 

1. The girl employed, at the salary paid, usually has inferior 
intelligence and possesses little sales talent. That is, she is 
not especially fitted to make herself invaluable to the organi- 
zation and to put herself in line for promotion. 

2. Few five- and ten-cent stores have spent any time or money 
trying to better the sales talent they have. 

But, with this exception, the road to promotion is generally 
open, and in few other lines of business is it possible for the 
worker to get a squarer deal from the management. 

A Man's Record. — Progressive chains do, and should do, 
everything possible to increase sales effort on the part of the^ 
personnel. Then by their careful system of records, they can 
watch the progress of a member of their organization from the 
moment he steps behind the counter. They have a record of the 



TRAINING MEN FOR PROMOTION 203 

sales in that store prior to the time he stepped into it, and it is an 
easy matter to compare this old record with the new performance. 

In the National Drug Stores organization, the facts about 
every man are noted on a card. When a vacancy occurs, these 
cards are consulted, and the man who apparently possesses the 
most desirable characteristics for the position is sent for and 
interviewed. 

The United Cigar Stores Co. lays especial stress on courtesy. 
Those who do best to uphold this policy are presented with a 
gold watch and a testimonial. President Wise says ^Hhe power 
to give service would stand a man in as good stead as anything 
for promotion. The man who combines honesty of purpose, 
and loyalty to the company, with active interest in promoting 
goodwill and satisfying customers, is so valuable to the United 
Cigar Stores that he is bound to climb rapidly.'' 

Courtesy, without doubt, is a difficult quality to tabulate 
and put on cards. But it is also true that courtesy almost 
invariably results in increasing sales, and sales are simple matters 
to place on record. In addition, the United Cigar Stores relies 
on a department of inspection, since they have found the average 
clerk does not like to say ^Hhank you'' unless he is prodded. 
Therefore, a clerk is checked by sales records and personal 
inspection. 

Naturally, a store manager is judged by the results he obtains 
from his store. It is not always easy to determine just what a 
manager should sell from a particular store, since volume of sales 
may be affected by matters outside his control. Thus a store 
manager should not be judged by what other stores are doing, 
but rather by what happened in his own store previously. In 
general, of course, if sales increase in the majority of stores, the 
rest of the stores should show this same increase unless there are 
reasons, beyond the control of the manager, to prevent. 

Clerks on a commission basis have often complained that at 
some counters it was possible to make twice as much commission, 
with half the amount of work, as at other counters. Some 
managers have tried to equalize this by moving poor selling 
articles to main traffic channels or having a bargain counter 
adjoining, etc. 

In all chains records should be kept of employees on some 



204 CHAIN STORES 

basis which will fairly show the individual merits of every man. 
In a small chain whoever decides on promotions will probably 
know the personnel individually, but in larger chains, or chains 
the links of which are widely scattered, promotion is largely a 
matter of record, supplemented by personal interview. 

Shifting Men. — A man may be shifted for several reasons: 

1. To accustom the man to several positions. Some chains 
habitually shift their organization around to give all concerned 
a fresh viewpoint. In this way also every position has a number 
of understudies, ready to take up the regular duties of the posi- 
tion if for any reason it becomes necessary. Some chains find 
it advisable to shift managers of stores from one city to another 
temporarily to give them fresh selling ideas, and in their absence 
the assistant manager takes charge, and is given an opportunity 
to win his spurs. 

2. As a form of promotion. Where a store manager is 
dependent on the profits or sales of his store for his salary, it is 
a frequent practice to move a manager who has done well to a 
bigger or more profitable store. This is equivalent to increasing 
his pay and promoting him. 

There is something to be said against this policy, however. 
It is not always desirable to break up business acquaintanceships. 
That is, a manager may be a positive drawing card to a store 
through the influence of his sales personality. This is true, 
of course, only where the manager meets his trade personally 
and would not apply to a chain department or variety store. But 
even in those cases, the manager probably has 'a very thorough 
knowledge of local conditions which benefit both him and the 
chain directly. 

3. As a form of demotion. If a manager fails to make good 
at a certain store and yet possesses many of the qualities 
requisite in a manager, it is sometimes possible to move him 
somewhere else. For example, a manager may succeed wonder- 
fully in a small store where everything was personally attended to 
by himself, yet fail in a larger store because he lacked the ability^ 
to handle other men. The logical move would be to bring this 
man back to the small store. 

Recruiting the Personnel. — Higher positions are filled from the 
ranks in the manner previously described. We have also seen 



TRAINING MEN FOR PROMOTION 205 

that a man should start at the bottom. Now, where are the 
men to be found to fill these initial positions? The somewhat 
original method used by Mr. Penney in obtaining his men has 
already been described elsewhere. The success of his method is 
sufficiently justified by results. 

Larger chains have employment departments. There are 
certain definite qualifications which an applicant is required to 
meet. There is an unusually large proportion of rejections. 
Previous selling experience is not a necessity. Some chains 
regard it as an objection, because they find it far easier to teach a 
man with no preconceived selling ideas their policies and plans. 
In the chains that use scientific methods of hiring, there is a 
small labor turnover. That is, men who are chosen for employees 
enter the service of the chain with the idea of ultimately becoming 
store managers, and not merely of working until they tire. Work 
on the lower rungs of the chain ladder is particularly exacting. 
Although there are certain closing hours, these are by no means 
fixed and the clerk may often have to remain after the store is 
closed to pack away goods received from the warehouse ready for 
the next day^s trade, or for other routine work. But the oppor- 
tunity which the chain offers to a man without capital of his own 
to become a store manager insures the average chain an adequate 
supply of men of the right type. 

So far as the woman clerk is concerned, the New York 
Department of Labor reports that the selection of the girls for 
the job is governed by what type of girl can be obtained at 
the particular time she is needed for the lowest wage the mar- 
ket offers. Its finding was that any idea of a permanent, 
satisfied, well-trained, working force was strangely absent; 
girls came and went. This was particularly true in factory 
towns where the girls in good times worked in a factory, and when 
they were laid off or got tired of factory work, clerked in five and 
ten cent stores for a while. 

There is no accepted practice of hiring or choosing employees, 
but it is safe to draw the following conclusion: Since the chain 
organization is dependent on its men as much as on its methods, 
no effort expended in securing men of the right type can be wasted. 

Training the Salesman. — There are two methods of training 
the salesman, the first before he actually goes behind the counter, 



206 CHAIN STORES 



1 



and the second training him after he has begun to sell. The 
educational department ordinarily takes charge of actually 
training the salesmen. This pre-training period is the direct 
outcome of the recognition of the value of such training in in- 
creasing sales. It enables the chain and the clerk to earn more 
money. 

The chief defect of a chain, and particularly of a large one, 
is lack of personal touch. If the organization can take its men 
at the very beginning and teach them just what the organi- 
zation itself is, the nature of the goods, and in addition give 
them a brief but thorough course in retail salesmanship, a great 
deal has been accomplished. 

Almost every chain has a particular policy in regard to the 
conduct of the clerk while making a sale. It is very important 
that this conduct be standardized. A customer going into one 
branch of the chain should find exactly the same service that 
he finds in another branch. Now the only way to standardize 
service is to teach the man just what is wanted in the first place 
and then make him hold to that standard. Therefore, one 
method of training, although a negative one, is keeping 
inspectors on the road, unknown to the clerks, to see if poli- 
cies and practices are being carried out. 

In large cities or centers of population classes of salesmen, 
are in daily session. An educational director is in charge. In 
a few weeks he can teach the intelligent salesman facts which 
experience might not drill into his head for years. The salesman 
thus trained lacks only experience. Where stores are located 
at distant points, new salesmen may be trained in district offices. 
For example, a chain with an educational department in Chicago 
might refer an applicant in Maine to district offices in Boston. 
If the application were accepted, the salesman might be trained 
direct in the Boston district office, and receive his first selling 
experience under supervision in the district store. 

Generally speaking, salesmen are trained along the following 
lines : 

1. Policy of the chain. 

2. Knowledge of the product or products sold. 

3. Arrangement of the store. 

4. Store routine. 



I 



I 



TRAINING MEN FOR PROMOTION 



207 



5. Service to customers. 

(a) Courtesy. 

(b) Remembering faces, etc. 

6. Miscellaneous points, differing according to the nature of the chain. 

In other words, salesmen are taught standardized sales methods 
applicable to the particular chain. 

The Model Store. — When salesmen are trained at a central 
point, it is advisable to have a model store. This will serve two 
purposes. It will give the salesmen a practical illustration of 
what is being taught them, and it will serve the company as a 
model for window trims, experiments of various kinds in selling, 



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Fig. 28. — Floor plan of model Winchester store. 



etc. The model store is virtually a laboratory for the entire 
chain. It tries out experiments and the result as shown in the 
model store determines whether they shall be adopted or rejected. 
Figure 28 shows the floor plan of a model Winchester store. 
Contrary to the ordinary hardware store, there is nothing 
to obstruct the view, no rolling ladders along the wall, nothing 
cumbersome in the center of the store, and no goods suspended 
from the ceiling. Goods which display well, specialties, fancy 
goods, tools, cutlery, or sporting goods are in the front of the 



208 CHAIN STORES 

store, while more staple lines are in the back or in the basement. 
No stock is carried above the ledges along the side of the store. 

Whether the clerk has to arrange displays in his own store 
or not, he must be taught at least an understanding of the value 
of display. The model store is dressed differently every week. 
Window displays are changed and counter displays of stock 
are altered. A complete rearrangement takes place to care for 
seasonal demand. Things in the greatest demand are featured in 
the windows, on the counters, by floor displays, by displays 
around pillars or columns in the center of the store, etc. 

Let us consider, for example the experience of one chain, as re- 
ported by F. J. Arkins, Staff Secretary of the Alexander Hamilton 
Institute. He states that the work is carried on by professional 
window dressers, advertising men, experts in the matter of store 
and stock display. The final display is determined in a con- 
ference. All the week, perhaps, these men have been meeting 
the trade, discussing matters with patrons, and talking with 
customers regarding their wants. These men have also examined 
and analyzed the records of all of the branch stores for the 
corresponding period one year ago, two years back — and the 
averages over a period of perhaps ten and maybe twenty years 
or as many years as the chain has been in business. The records 
give the results from different types of stores, regarding counter 
and window displays. 

These men have before them photographs of all displays for 
the week under consideration. 

Comments from branch managers and customers, complaints, 
etc., are taken up in conference. Each point is debated. There 
is certain to be a difference of opinion in the conferences. This 
is considered fortunate. In this case, it is believed that a de- 
cision, when finally made, will meet the objections of everyone 
present. 

After the displays have been decided upon, the windows, 
the store interiors, and counter displays are photographed and 
copies of the photographs are sent to every branch manager, who 
puts up his new display according to the photographs. Thus all 
store links in the chain will show the same window display, 
counter display, and floor display at the same time and for the 
same number of days. 



TRAINING MEN FOR PROMOTION 209 



I Now assuming that the salesmen have had several lectures on 
the policy of the organization, its history, its ideals, etc., they are 
then taught practical retail salesmanship through the model 
store. 

Knowledge of Product. — Chain salesmen should be given a 
thorough knowledge of the stock they handle, its uses and 
ingredients, the processes of manufacture, how and why goods 
are packed in certain ways, the origin of raw materials, and many 
additional data. They must be ready to answer questions of 
any kind. 

D. C. Keller, directing head of the Dow Drug Co. of Cincinnati, 
relates some interesting experiences he had while investigating 
the knowledge of drug clerks in regard to their products. The 
following is quoted from Drug Store Merchandising for October, 
1921: 

Mr. Keller went to a drug store in Chicago. He called for a 
box of sea salt; ^^bath salt,'' it is known to the trade. Mr. Keller 
knew what the particular brand of bath salt brought him by the 
clerk cost the druggist, and what a fair profit should be. He also 
knew the prices of certain other, equally popular, bath salts. 
^^How much is this?" he asked the salesman. 

The price was given. 

'^You haven't a cheaper grade of bath salt, have you?" he 
asked then, as a man who will leave without buying will do, 
unless he can buy for considerably less, when prices quoted 
appear high. 

The clerk, who had tried to sell the high-priced product first, 
immediately produced a bath salt selling for much less. 

^^ What's the difference between them?" Keller asked non- 
chalantly. 

The clerk proceeded to expatiate on innate properties of 
salt derived from water drawn from one portion of the Atlantic 
ocean as compared with water from some other, taken from the 
same seaboard, some miles distant. 

'^But this higher-priced salt was made in Michigan.'' Keller 
interjected, reading the label. 

The clerk examined the carton, flushed, and said the goods 
were given him to sell at the prices marked on them. A good 
salesman always tried to sell his highest-priced wares first. 

14 



210 CHAIN STORES 

A modern drug store contains so infinitely many items that not 
even a Solomon could know all a man should know about the 
goods. 

This story goes to show that a clerk may do more harm by 
ill-advised efforts to sell goods with false information than it 
would cost the chain to educate him after finding out how 
Uttle drug clerks really knew about the products they sold. 
Mr. Keller, now, before every special sale in a Dow drug store, 
prepares a tabloid essay on the product. This contains informa- 
tion about the raw material; how it is put together; what are the 
exceptional uses of the product; what are the differences between 
grades; how goods should be cared for by their buyers, etc. 

To quote from Drug Store Merchandising: ^^One copy goes, 
by the firm's courier, to every Dow store, and must be receipted 
for by the manager in charge. It must be posted at once and 
every employee is responsible for its contents within a reasonable 
time — a few hours, that is — after posting. There can be no excuse 
for not having read a bulletin bearing the imprint of the presi- 
dent's office; instant dismissal is the reward of a proof of this 
charge!'' 

This policy has proved highly successful in increasing sales. 
People who dropped in to look around went away with a purchase. 
They simply couldn't resist the selling argument. Following is 
a copy of the bulletin sent out on the subject of chamois: 

The President's Sales Promotion Bulletin No. 11 

CHAMOIS 
To THE Dow Sales Force: 

As you already know, on the 16th inst. there will go on sale in our stores 
a big bargain in chamois. This, is a special sacrifice price and we probably 
can't continue these prices after this lot is sold. Chamois will give better 
service and last longer if they are properly cared for. Water which is too 
hot, or extreme heat when drying, are injurious. Leaving the skin wet, 
without wringing it out, when not in use, is also destructive. Strong 
acids and impure strong soap should not be used on chamois. It is also 
better to have special chamois for rough, dirty work. After being used, 
chamois should always be washed thoroughly, in luke-warm, soapy water; 
using good soap. Then rinse in clear water, wringing the chamois as dr/ 
as possible, pulling it out as nearly as possible to its original shape and 
hanging it up to dry. Do not dry it on a radiator or other hot place. 'Do 
not let chamois lie around dirty for a considerable period, but wash as 
soon as possible after using. Chamois themselves will not scratch the 



J 



TRAINING MEN FOR PROMOTION 211 

finest of surfaces, but if they are allowed to accumulate dust, grit, and dirt 
they will not prove satisfactory, unless they are washed thoroughly before 
using. 

All these points should be carefully explained to the customer as a matter 
of DOW SERVICE. Most of the customers in your store next week are 
possible purchasers and you should suggest chamois to each of them. These 
chamois have been retailing anywhere from $4.00 to $5.00 and if the cus- 
tomer already has a chamois don't fail to suggest the purchase of addi- 
tional ones now as matter of economy, because the price will be higher. 
Suggest the various household uses — cleaning pianos, furniture, windows, 
mirrors, interior wood work, and polishing floors, bath tubs, wash stands, 
pictures, lamps, sewing machines, and all such similar articles, and then, of 
course, their very general use for automobiles. 

These chamois are absolutely ''firsts," that is, perfect in every way. 
Many chamois sold are ''seconds," and have in them thin places, hard 
spots, rough spots, and various blemishes. There is not a second in this 
lot. These chamois are not racked chamois. A racked chamois is one 
which has been w^et in manufacture and then stretched and tacked to a 
board, or in other ways held in place until it is dry. It is then much larger, 
but when it is again wet and dried, it will shrink back to its original size. A 
racked chamois can frequently be told by small tack holes around the edge. 
This is good selHng talk. 

D. C. Keller, 
President and General Mgr. 

There are other ways, of course, of instructing the sales 
force as to the product, but this method has the advantage of 
novelty and, by concentrating sales effort on the article or product 
described, the clerk is able to see immediate results. Thus his 
cooperation is secured. The majority of small chains have to 
educate their clerks after they are hired. In all chains there 
must be a constant driving effort to keep clerks up to the mark. 

Training in the Right Arrangement of the Store. — The arrange- 
ment of branch stores is strictly in accordance with the 
arrangement of the model store. In fact, arrangement is 
perfected in the model store. The model allows for variations 
in stock, due to different localities and their varying tastes, etc. 
The manner in which the stocks may be alternated is shown. All 
the changes in stock will take place at one point, or if at more 
than one point, the salesman is taught exactly where to look. 
The character and nature of the article in those particular places 
indicates to him what has been dropped or changed in that store. 
Methods for adding new counters or tables to handle additional 



212 



CHAIN STORES 



stock during heavy seasonal demands, as in the holidays, are 
shown. 

Figure 29 shows arrangement of stock in the Winchester 
Model Store. In this store there is not an item carried in stock 



pi 

ill 



\U\hi{ iW 



!!!!!i 



B n 



ililiii 

III I III 

i I J •»■■■■ S: 



■ ■■III ■ I 



Fig. 29. — Section of display panel in Winchester store. 



4 



which is not shown in display. Goods are stocked behind the 
panel doors shown in the illustration. / 

A thorough knowledge of the arrangement of stock as plotted 
by the central office allows clerks to be shifted from one store 
to another in the same chain without the slightest confusion. 
It is another- step in standardizing sales service. 



TRAINING MEN FOR PROMOTION 213 

Service. — Although the chain stores have largely cut out what 
had been known as service — credit, deliveries, returns, etc., — it is 
still in their power to render the most important help of all, and 
that is selling service. Display will sell goods, price w411 sell 
goods, but the services of the clerk are needed to make a complete 
combination. The custonuer must be treated in such a way that 
he will come again. And this is the reason the United Cigar 
Stores Co. insists upon courtesy to the customer and why George 
J. Whelan says if he wrote a bible for salesmen, the first com- 
mandment would be '^ Thank You.^' Salesmen are given a 
specific order, reading as follows : 

''Thank you^' 
** Always acknowledge a purchase with a genuine 'Thank you, Sir,' 
or 'Thank you, Madame,' or some variations of the phrase, as for 
example 'Many thanks,' or 'Much obliged to you.' Say whatever you 
say out loud as if you meant it. Under no circumstances must this 
rule be \dolated." 

Then one day each clerk in the organization received a tele- 
gram reading ''Did you say 'thank you' to every customer you 
waited on today?.'' Some answer had to be made and replies 
flooded the central office. Mr. Whelan had chosen the /'thank 
you'' phrase as the slogan of courtesy for use by the clerk. 

In some chains clerks are told to remember the names of 
customers. All these, of course, are old tricks of salesmanship 
but the chains have done more towards making a scientific study 
of retail selling than any other retail organizations in the country, 
with the possible exception of some department stores. 

Other chains dwell on the value of a smile when making a 
sale, others on an even, well-trained voice. But the point is 
that the chain organizations train their men to treat customers 
in such a way that they will become regular patrons. 

Service may mean many things, but the chain store definition 
is service by the salesmen to the customers. For example, the 
following paragraphs show the idea of service which is taught by 
the Walgreen Company, which operates 27 candy and drug stores 
in Chicago and vicinity, (Quoted from Drug Store Merchandising) : 

1. Employees who are not polite to every customer have little chance of 
getting on whether in our employ or in the employ of someone else. 

2. When the impossible is asked for — be pleasant, that is service. 



214 CHAIN STORES 

3. Give each customer your whole attention. 

4. Give as much attention to a Httle buyer as to a big one. 

5. Always be circumspect. 

6. When an article is not in stock, show a painstaking desire to get it 
for the customer. 

7. Render this service with as much promptness and as little trouble to 
the customer as possible. 

8. See that your floors are always clean, they mean reputation for the 
company. 

9. Service is a matter of attitude as it is of action. You must bear in 
mind that service without wholeheartedness and simple kindness is useless. 

10. Service is advertising that pays. Such advertising is in your power 
to create. 

11. Your ability is judged by your power to cooperate. You progress by 
your capacity and willingness to cooperate. 

12. Executives maintain their positions because they can cooperate with 
other executives and with their co-workers. 

13. Make your cooperation wholehearted and real. It is more than 
obeying or giving orders. It means working with one's fellows in a spirit 
of helpfulness and good fellowship. It means avoiding the friction of inat- 
tention, deceit, selfishness, egotism. In other words, it means teamwork. 

The chain store possesses one enormous advantage over its 
independent competitor. With the exception of five and ten cent A 
stores and other chains where the mere sales clerk has Httle or 
no opportunity for advancement, the chain clerk finds that his 
service to the customer actually pays him in cash. Where a 
man's own interest is concerned, there is ordinarily little difficulty 
in obtaining first class service for the customer. 

Inspectors. — But unless the company devises some method of 
keeping track of the salesman's attitude toward the customer, the 
high standard which has been set by the educational department 
will be lowered. Sales bulletins and letters may help, but the 
only way of actually overseeing the attitude of the clerk is by 
personal observation. This is comparatively simple where the 
chain is a small one and the links closely connected. Different 
members of the organization may take turns inspecting retail 
service. ■ 

But with the larger chains it is necessary to employ inspectors 
who are unknown to the employees in the different stores. These 
inspectors ask innumerable questions before purchasing small 
articles. They may even try to annoy the salesman deliberately 
with a view to ascertaining his reaction. 



I 



TRAINING MEN FOR PROMOTION 215 

It is frequently found that no endeavor to be insulting on the 
part of the inspector succeeds in ruffling the composure of the 
salesman. He neither loses his temper nor can he be tempted 
into making a discourteous retort. He frequently sends away 
the customer in the best of humor. 

It often develops in the course of these inspection trips 
that points are noted which prove of importance enough to be 
incorporated in the store manual. This, after all, is the most 
important part of the inspector's work. Although employees 
who do not reflect credit on the company's training are 
eliminated, it is the constructive selling ideas which are of the 
most benefit. 

Their purpose is fourfold : 

1. They test the knowledge of the salesman in regard to his stock. 

2. They find out whether he is tactful, polite, and considerate even under 
provocation. 

3. They determine whether the salesman seeks to give real service to the 
patron. 

4. They collect new selling ideas which may be applied with profit to the 
entire organization. 

There are, of course, objections to this practice; but in general, 
it makes for the store's efficiency. 

The Saleswoman. — Far less has been done in the line of training 
women in salesmanship, principally for the reason, as mentioned 
before, that the chain's efforts were directed towards educating 
men for store managers and higher positions. But there are 
signs that executives are beginning to realize the advantage to 
them of training the salesgirl. The following is taken from a 
notice to managers: 

^^Do you realize that the point of contact with the buying public 
is through your salesgirl? At first thought, some of your managers 
may be inclined to disagree on this point. A few may think that we 
are trespassing on their ground. But consider this: A manager's time 
must necessarily be divided over a great many duties. This does not 
leave him free to spend his entire time behind the counter. Therefore, 
he must rely, to a very considerable extent, upon the cooperation and 
loyalty of his salesgirls. 

*'Are you managers just paying the salesgirl her weekly wage and 
dismissing all further responsibility towards her? Or, are you giving 
her a little insight into your business? Have you convinced her that 



216 CHAIN STORES 

yours is a Quality store and that she has every reason to be proud of 
standing behind your counters and selling Quality goods? Have you 
made her feel that she has a responsibility in the successful operation 
of your store?'' 

The New York Department of Labor found in one of the 
smallest up-state stores a system of giving sales stimulus to the 
girls by means of an ^^ efficiency rating card.'' The manager, 
who was new and young, gave the girl with the highest rating 
every week a bonus. Rating was apportioned as follows: 10 
per cent, for discipline, tidiness, etc.; 10 per cent, for general ap- 
pearance of counters and shelves; 5 per cent, for having counters 
and shelves filled; 5 per cent, for having paper and cord on hand; 
15 per cent, for having merchandise displayed for selling merits; 
15 per cent, for having the under-counters absolutely clean and 
in order; 15 per cent, for having the price signs in the right places; 
10 per cent, for remembering to register money before wrapping; 
10 per cent, for care in reducing shrinkage, and 5 per cent, for 
politeness to customers. The small allowance for politeness is 
significant in this case as showing the attitude of the five and ten 
cent store towards the actual manner of making sales. 

For a store which, like the five and ten cent store, must keep 
expenses down to the minimum, such a system offers induce- 
ment to the girls for good service and at the same time does not 
appreciably increase wage expenses. One five and ten cent 
store chain has a special training force of six women who are 
constantly on the road opening new stores, selecting employees, 
and adjusting grievances in stores already opened. Another 
chain endeavored to get local managers to start classes among the 
sales girls for training in salesmanship. 

Conclusions. — As conclusion to this chapter, one of the general 
letters sent out by this chain for these training classes shows 
the type of educational matter best fitted for the salesgirl. 

General Letter 
Training of Sales Force 

The following article is copied from a current magazine: / 

A Cause and a Cure 

Desiring to learn the reason why certain retail customers had discon- 
thiiied l)uying goods from them, a large department store made an investi- 



i 



I 



TRAINING MEN FOR PROMOTION 217 

gation among 197 different households, as a result of which they compiled 
the following statistics. Here is what the customers gave as their reason: 

1. Indifference of salespeople 47 

2. Attempts at substitution 24 

3. Errors 18 

4. Tricky methods 16 

5. Slow deliveries 17 

6. Over-insistence of salespeople 16 

7. Insolence of salespeople 16 

8. Unnecessary delays in service 13 

9. Tactless business policies 11 

10. Bad arrangement of store 9 

11. Ignorance concerning goods 6 

12. Refusal to exchange goods 4 

Total 197 

The fact which is most forcibly brought out in these statistics is the large 
percentage of reasons given for which the clerks or salespeople were directly 
responsible. There are the ones numbered 1, 2, 6, 7, and 11 in the table 
shown. 

Here are 109, at least, out of the 197 households interviewed, or a little 
over 55 per cent., who gave such reasons as indifference, insolence, ignorance, 
and over-insistence on the part of the sales people as the cause of the dis- 
continuance of their patronage. 

When it comes down to a final analysis of the situation, the clerks were 
not so much to blame as the store management. . . . 

In this connection, we cannot over-emphasize the importance of the 
saleswoman's position in your store, as the connecting link between the 
management and the customer. 

The advantage of training men for promotion has been amply 
proved by experience. The advantage of training salesmen and 
salesgirls in standardized chain methods of service and salesman- 
ship is becoming more and more apparent. It cannot help 
succeeding because it is economically profitable to all parties 
concerned. 

1. The chain obtains a larger volume of sales. 

2. The clerks obtain a larger bonus and more rapid promotion. 

As a general thing, the better training the clerks receive, 
the better type of personnel is secured, more profits accrue, and 
better wages can be paid. 



CHAPTER XIV 
MAINTAINING MORALE 

Outline 

Methods of obtaining morale. 

1. Conferences. 

2. Bulletins and letters. 

3. Contests. 

4. Rewards and special bonuses. 

5. Organization magazine. 
Conferences. 

1. Strictly business. 

(a) Held at regular periods. 

1. Meeting of managers. 

2. Meeting of district heads. 

3. Meeting of store force. 

2. Partly business. 

(a) Annual conventions. 
(6) Dinners. 

3. Results. 

(a) Confidence in organization. 

(b) Spirit of good fellowship among personnel. 
Bulletins and letters. 

1. Should combine 
(a) Instruction. 
(6) Stimulus. 

(c) Praise or blame. 
Contests 

1. Components of good contest. 

(a) To stimulate interest. 

(b) Bring the winner 

1. Notoriety. 

2. Cash. 

3. Both. 
Rewards. 

1. Recognition of 

(a) Unusual service. 
(h) Unusual merit. 

(c) Long service. 

218 



MAINTAINING MORALE 219 

House magazine. 

1. Published in interest of personnel. 

2. Maintains contact 

(a) Between various links in organization. 
(6) By personal bits of information. 
(c) By photographs. 

3. Makes known the policy of the company. 

(a) Articles by executives published. 

4. Policy of magazine must be in accord with policy of organization. 
Results of morale. 

1. Discipline. 

(a) Importance of rules. 

1. Each store representative of the whole organization. 
(6) Necessity of making clerks see it is for their own good to main- 
tain discipline. 

2. Teamwork. 

(a) Feeling of goodwill among employees 

1. Towards company. 

2. Towards each other. 

3. Increased profits 

(a) For company. 

(6) For individual members of personnel. 



CHAPTER XIV 
MAINTAINING MORALE 

The morale of an organization may be called its mental state. 
This mental state is not stationary, but is constantly fluctuating 
in response to the many influences brought to bear from all 
sides on the company and its employees. The company which 
maintains the morale of its organization at a high pitch is usually 
successful financially, because an upward trend in morale is 
directly reflected in profits. 

''Good morale,'' says R. S. Woodworth, in his book on Psy- 
chology, ''means more than willingness for duty; it means 'pep' 
or positive zest for action. Where the master is able, in the 
first place, to show the servant the objective need and the value 
of the goal, and to leave the initiative in respect to ways and 
means to the servant, looking to him for results, the servant often 
responds by throwing himself into the enterprise as if it were 
his own — as, indeed, it properly is in such a case.'' 

The aim of all methods of personnel administration is to main- 
tain this morale, and, where it did not previously exist, to build 
it up. Maintaining morale for the chain store organization is 
especially important because of the geographical distances 
separating the various links and the consequent impossibility 
of individual supervision of the personnel. Therefore, this 
feeling of interest in the company and its activities which we call 
morale must be kept up by other means. 

In the case of a factory, morale is a factor in production; 
in the case of a chain store organization, it is a factor in selling. 
To obtain maximum results, it is necessary to analyze morale 
and ascertain by what means it can best be secured. , 

The Elements of Morale. — There are five points to be con- 
sidered ordinarily by the chain management in its efi"orts to 
improve and maintain its morale. 

1. The company must inspire the employee with confidence 

220 



MAINTAINING MORALE 221 

in it, in its officers, and in its policies. This is a necessary 
requisite for morale, since there can be no discipline and team- 
work where there is no confidence. 

2. The company must give its employees some financial interest 
in the business as a reward for efficient service. 

3. The employee must feel he is working towards a definite 
goal. Through his own experience and by observing others he 
must realize that promotion is won mainly by his own efforts. 
He should be shown how he is progressing from week to week and 
from month to month. 

4. The element of competition should be present. The clerk 
in the store should be able to compare his achievements with 
those of clerks in other stores. Furthermore, some degree of 
responsibility should be thrown upon his shoulders. 

5. The company should try to make its employees feel that 
they are members of one family. That is, it must make them 
acquainted with each other and with the company. The em- 
ployee should feel that what touches the company's welfare 
touches his as well. 

No organization can score 100 per cent, on the question of 
morale, but it is possible to maintain morale at a high level. 
It is generally accomplished by the use of some or all of the 
methods discussed in the rest of this chapter. Which particular 
methods are used depends a great deal on the size of the chain 
and also on the size of the units in the chain. The question of 
morale in a five- and ten-cent store organization has two aspects 
first the morale of the store employees in relation to the store, 
and second the morale of the store manager in relation to the 
whole organization. The small chain can do without, and, in 
fact, from motives of economic operation, must do without such 
methods of maintaining morale as the house organ. In the 
very small chain morale is enforced and maintained by daily 
personal visits of the executive. It is also possible for the 
various store managers to hold frequent conferences. But, 
although methods differ, the purpose remains the same, namely, 
to secure the cooperation of the employee in the activities of the 
company. 

Methods of Creating Morale. — There are five ordinary 
methods of securing proper morale : 



222 CHAIN STORES 

1. Conferences. 

2. Daily letters and bulletins. 

3. Contests. 

4. Rewards and special bonuses. 

5. A house organ. 

The first two methods will make the employees of the company 
interested in their work and confident in their own future as 
well as that of the company. Contests bring in the element of 
competition. Rewards and bonuses give that financial stimulus 
which chain organizations have found essential, and the house 
organ endeavors to create the family spirit, to acquaint the 
employees with the policies of the company, and to furnish a 
medium of publicity. 

Conferences. — Conferences, of one kind and another, are 
essential. In all chains they should form part of the routine. 
There are several types of conferences, strictly business meetings, 
confined mainly to executives and store managers, and meetings 
which aim to introduce the element of good fellowship, such as 
dinners and conventions. 

Some chains have an annual convention at which all managers 
attend who can possibly do so. Policies and plans for the coming 
year are outlined and explained. The various local men have an 
opportunity to get away from the somewhat narrowing precincts 
of their own stores and to obtain a broader view of the organiza- 
tion in its entirety. 

Conferences during the year are often held at stated intervals. 
Where chains are limited in geographical extent, all managers 
can usually attend. Where chains are more extended, district 
conferences may be held, and the problems brought up at that 
time discussed a second time in a conference of district managers. 
Conferences may take the form of dinners when it is believed the 
more informal atmosphere will lead to better results. 

Where the personnel of a single store is fairly large,, as in a 
department store or five- and ten-cent store, conferences and 
meetings should be held frequently. As mentioned previously, 
these conferences may be made the occasion of instructing sales- 
men and salesgirls in better methods of salesmanship. 

Some chains have adopted a policy of giving outings to which 
all employees are invited. Such a poUcy increases the feeling of 
goodwill among the organization. 



MAINTAINING MORALE 223 

Special conferences may be held when the percentage of a 
certain member store shows a marked falling off. The entire staff 
may be called in to go over the specific problems of the particular 
store. This avoids any unjust action. Reprimands often do 
more harm than good, especially as investigation frequently 
shows that bad conditions are due to external circumstances not 
apparent at first glance. 

Bulletins and Letters. — Keeping up morale is a ceaseless task. 
Good advice and good intentions are lost sight of unless in some 
way brought to mind. The store manager appreciates help of 
this nature. He is constantly reminded of what he already 
knows but is in danger of forgetting in the stress of the day's 
work and the monotony of his routine. 

Perhaps these bulletins give pointers and tips as to selling 
goods. Perhaps there is a list of averages in which he can find 
the position of his own store. A mere list of changes in price 
of products to be sold usually forms a part of the bulletin, and, 
although a necessary part, still it is just as necessary to keep 
in mind the question of the store manager's morale. 

In writing these bulletins there is danger, on the one hand, 
of becoming too prosy and on the other, to use the vernacular, 
too '^ peppy.'' There is a point between the two as is well shown 
by the following extract on the subject of window trims. See 
how cleverly instruction, stimulus, and praise are mingled: 

''Which One of the Five Senses Produces the Most Dollars?" 

''Is it the sense of sight — or the sense of hearing — or the sense of 
smell — or the sense of taste — or the sense of touch? 

''A recent investigation was made to determine through which one 
of the five senses sales were really made. The results were astounding: 
87 per cent, of the people bought the things they saw (in the windows, on 
the counters, in the showcases, etc.); 7 per cent, bought as a result of 
hearing; Z\i per cent, through the sense of smell; 1>^ per cent, through 
the sense of touch; 1 per cent, through the sense of taste. 

"Think of it! — 87 per cent, of the people buy by sight. Doesn't that 
drive home the importance of attractive window displays? Doesn't 
that make you stop and wonder whether your displays are as attractive 
as they can possibly be? Doesn't that make you realize that the time 
and effort you put forth to trim your windows is worth everything to 
you? 



224 CHAIN STORES 

''Maybe you are smiling as you read this. Perhaps you are saying 
to yourself that it is old stuff. Yet, we wonder how your windows look 
at eight in the morning. We wonder whether they are bare or there! 
We wonder if you are saying that you can't trim your windows early 
because your stuff isn't out of the oven yet. We wonder if you feel 
that it isn't worth the effort to trim windows before noon because nobody 
passes your store before 10 a.m. — and as we wonder, we keep on produc- 
ing display ideas and showcards just because we known that our pro- 
gressive managers are everlastingly looking for new stuff — new thoughts 
— new displays — anything and everything that will help them to make 
their windows more attractive. 

''We know that the live Federal managers have a window trim of some 
sort at 8 a.m., even if it is just a few cards placed in the window — any- 
thing to give the appearance that they are still in business — anything to 
attract the attention of the average person who passes the store from 
eight until noon. 

"And as you read this message, do you wonder why the stores that 
always have attractive windows usually do the most business?" 

"Has this straight-from-the-shoulder message convinced you that 
of the five senses, the sense of sight can produce more dollars than all 
the others? We wonder!" 

Note that the above article first proves the value of window 
displays in making sales, then applies it to the particular problems 
of the Federal System of Bakeries, and finally brings the matter 
down to the store manager himself, telling him how to use this 
bulletin to increase his sales. It is well-written and neither too 
dignified nor too familiar. Such bulletins as this prove helpful 
in the maintenance of morale. 

Contests. — Nothing is better for the morale of the organization 
than a good contest with some worth-while prizes for the winner. 
Everybody is on his or her tiptoes, and sales are bound to pick 
up. From the chain's point of view it is like the man who 
advertised he would give $5 for the best bushel of potatoes 
he received by a certain date, and in a few days had received more 
than a hundred bushels of prize potatoes. The chain pays a 
small amount to the winner and received in return the unite^ 
efforts of the sales personnel. There is a definite goal in view and 
each member has an opportunity to show what he or she can do. 

The most common plan is to give cash prizes to stores making 
the most sales, to be divided among the employees of that store. 



MAINTAINING MORALE 225 

The contest may take the form of the store making the most 
sales winning, or it may be the store which shows the greatest 
improvement in sales over the previous month. 

The Federal System of Bakeries has evolved a rather novel 
contest idea. The contest is treated as a horse race, each 
store serving as a horse and each manager as a jockey. The 
races are divided into various events. There are national 
races and in addition there are inter-district races. For exam- 
ple, in July 1921, a purse of $300 was divided with three prizes 
for each of the six districts in the country. 

The results are reproduced from the Federal Sunlight Maga- 
zine with details of the contest in the first district. 

Summary of July Inter-District Races 

A total purse of $300.00, divided six ways to cover the six events which 
constituted the July Inter-District Races, was awarded as follows: 

Is^ Race — The Knickerbocker Special 

First —Little Falls, N. Y $25.00 

Second — Stamford, Conn 15 . 00 

Third —Amsterdam, N. Y 10.00 

2d Race — The Keystone Handicap 

First —Elizabeth, N. J $25 . 00 

Second— Meadville, Pa 15 . 00 

Third — Duquesne, Pa 10. 00 

Sd Race — The Southern Sweepstakes 

First — Valdosta, Ga $25 . 00 

Second — Brunswick, Ga 15 . 00 

Third —Jacksonville, Fla., No. 1 10. 00 

4:th Race — Great Lakes Special 

First —Rock Island, 111., No. 3 $25.00 

Second— Wabash, Ind 15 . 00 

Third —Belleville, 111 10.00 

5th Race — Mississippi River Suburban 

First —Davenport, la.. No. 2 $25.00 

Second— Knoxville, Tenn., No. 1 15 . 00 

Third —Springfield, Mo., No. 1 10.00 

6th Race — Great Western Derby 

First — Bartlesville, Okla $25.00 

Second — Long Beach, Cal 15 . 00 

Third —Okmulgee, Okla 10.00 

Reports of how races were run. (Note: Names of jockeys have been 
changed in some instances, but official rewards for July are as given.) 

15 



226 



CHAIN STORES 
First Race 



I 



Horses 


Jockeys 


Posi- 
tion 
at 
finish 


Percentage 

of increase 

in retail 

sales for 

July over 

June 


Little Falls, N. Y 

Stamford, Conn 

Amsterdam, N. Y 

Norwalk, Conn 

Albany, N. Y 

Freeport, L. I., N. Y 

Lynn, Mass 


E. J. Andrews 
Mrs. Mabel Carrow 
J. A. Schmidt 
G. N. Carrow 
Mary Murphy 
Lela Hatch 
John Riley 
Mrs. Lee O'Brien 
Frank H. Baker 
Frank Oberg 

K. O'Hara 
W. R. Anderson 
Mrs. Chris Bleichert 
Albert H. Royer 
Mrs. R. Payne 
A. F. Schneider 
H. J. Konecny 

A. M. Hobart 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 

11 
12 
13 
14 
15 
16 
17 

18 


24.0 
17.4 
16.7 
14.6 
12.7 
11.5 
11.0 


Rome, N. Y 


10 3 


Hempstead, N. Y 


9 1 


Bridgeport, Conn 

Boston, Mass., No. 4 — 

Dock Square 

Mt. Vernon, N. Y 

Binghamton, N. Y 


7.8 

7.6 
7.4 

7 2 


Rochester, N. Y 

Peekskill, N. Y 

Jamaica, N. Y 

Yonkers, N. Y 

Boston, Mass., No. 5 — 

Massachusetts Ave 


6.5 
5.4 
3.9 
3.0 

0.6 



Also ran in order named: Boston, Mass., No. 3, Canal St.; Boston, Mass., 
No. 1, Federal St.; White Plains, N. Y.; Flushing, N. Y.; Boston, Mass., 
No. 2, Tremont St.; Elmira, N. Y.; Holyoke, Mass.; Brooklyn, N. Y.; 
Syracuse, N. Y.; Northampton, Mass.; Westfield, Mass.; Buffalo, N. Y.; 
New York City, No. 4. 

Remarks: Little Falls turned in a remarkable performance and led all 
the way. Stamford, the favorite, could not get up. Amsterdam, who 
finished third, ran a pretty race. Bridgeport and Albany were raced into 
submission by Norwalk. The others never had a chance. Winner trained 
by T. J. Madden. 

A contest, to be successful, must stimulate enough interest 
to bring the winner either money, notoriety, or both. The more^ 
publicity given to these contests, the better success they have. 
If no house organ is published, bulletins should be sent out. If 
the contest stretches over a long period, bulletins should be 
sent out giving the status of the contestants. 



MAINTAINING MORALE 227 

Rewards. — Rewards are closely allied with contests, the differ- 
ence being that in the latter case there is open competition, and 
in the former the result is, as a rule, unsolicited. For example, 
when an employee of the Whelan organization performs any 
service which brings him to the attention of the main office, 
Mr. Whelan would write him a personal letter of commendation 
and thanks. Inasmuch as contests and rewards must have 
publicity to be effectual, the letter is mailed in a flaring red en- 
velope so that everyone in the office or store cannot help knowing 
it has been received and the natu.re of the contents. To make 
matters doubly certain, the reward is announced in the monthly 
bulletin. 

Most chains give Christmas presents, at which time special 
merit may be rewarded. Frequently the basis of the amount of a 
Christmas present is the length of service, thus placing a premium 
on steady employment. 

All bonuses are in the nature of a reward for work and atten- 
tion above the average, but reward in the sense of being limited 
to recognition of acts on the part of the employees beyond the 
mere duty of routine selling and managing. Recognizing such 
acts is an excellent method of acquiring the goodwill of 
the employees. 

The House Organ. — House organs published by chain organi- 
zations are employee publications, or internal house organs. 
They are published solely in the interests of the personnel. A 
house organ is one of the methods of maintaining morale where 
personal contact is lacking. It reproduces the results of contests, 
gives personal news about the various employees, and their 
views on different company matters. It is not only a clearing 
house for gossip but should also contain certain ^^ inspired ^^ 
articles from the central office. 

Robert E. Ramsay, in a magazine article, has made an excellent 
summary of the vital points to be kept under constant considera- 
tion in editing a house organ of this nature. 

1. Analysis of the policy. 

2. Purpose. 

(a) Sales. 
(h) Goodwill, 
(c) Educational. 



228 CHAIN STORES 



i 

ead li 



3. The editor. 

4. The name — a freak or unusual name will not wear well and may lead 

to discontinuance. 

5. A sub-title which makes clear the plan and purpose of the publication. 

6. Size and analysis of the field to be reached. 

7. Frequency of issue — very important and must be lived up to. 

8. Cover design. 

(a) Permanent. 

(6) Changed each issue. 

9. Style of appeal. 

(a) Language. 

(b) Personality. 

(c) Atmosphere. 

In addition to these points it is very necessary to make a 
budget of expenses of publication. Owing to the constant circu- 
lation, this should not be difficult. All material is either 
^^nspired'' from headquarters, prepared by the editor, or got 
from the branches and their personnel. There is no difficulty in 
obtaining material, due to the universal desire to appear in print. 

There is one important point to observe in editing the house 
organ and that is a careful agreement between the policy of the 
house "and the policy of the publication. The two must be 
identical. One other point to remember is that the average 
person objects to '^ ginger^' and ^^pep'^ literature. He would 
much prefer a simple, lucid explanation of the facts and how they 
apply to him. All sermonizing and moralizing should be 
done carefully. A busy salesman has no time to read sermons. 
But he will read articles about his business and about himself 
and about the other members of the personnel, because he is 
interested. 

House organs are ordinarily illustrated with photographs 
of various members of the personnel, their stores, their sweet- 
hearts, etc. The Federal Sunlight Magazine has the back cover 
made so that it can be cut out and used for a window paster by 
the manager. 

The editor of the magazine should be in the closest touch with/ 
the controlling head of the business, who often looks over the 
proof before printing. The editor himself, according to Mr. 
Ramsay, must be author, feature writer, advertising man, 
investigator, salesman, preacher without seeming to preach, 



MAINTAINING MORALE 229 

teacher without seeming to teach, reporter, proof reader, and 
planner. 

To conclude, the editor of '^The Acme Special,'^ Fred. B. 
Barton, says: '^ We try to have this paper hold the Acme family 
together in a unit, to keep up the family feeling, even though 
Bill Jones at Acme 6 may only see Tom Smith at Acme 56 once 
a year. Also we mix in a little educational and inspirational 
matter now and then. We believe that the paper has some effect 
in making men satisfied with their jobs and encouraging them 
to grow into better positions and to look ahead to a real future 
with our company.'' 

Enforcing Morale and Results. — There are two methods of 
checking up the morale of a chain organization. The first is to 
employ a corps of inspectors who will personally see that the 
policies and plans of the central office are carried out. The 
second is to allow the personnel to evolve its own morale under 
the inspiration and educational leadership of the head office. By 
the second method the responsibility is as far as possible shifted 
from the chain to the employees. 

But, however spontaneous the maintenance of morale may 
become, the central office of the chain must exercise some super- 
vision. In large organizations this can be done only through a 
special department which will be in part the personnel depart- 
ment, although it may go under a variety of names. In smaller 
chains, this supervision must be exercised by some other depart- 
ment, probably the sales department. 

Good morale manifests itself in the three following ways: 

1. Effective discipline, cheerfully submitted to. 

2. Spirit of cooperation. 

3. Increased profits to personnel and company. 

The first two are necessary to produce the last. Other things 
being equal, if the first two can be secured, the last will follow as a 
natural corollary. 

Discipline. — What does discipline mean to a chain organiza- 
tion? It does not necessarily mean that the assistant must say 
'^Mister" when addressing the manager, as one chain vainly 
attempts to enforce. It is something much broader and more 
important. In a way, every branch store in the chain and every 



230 CHAIN STORES 

clerk in the store is representative of every other store and clerk 
in the chain. If one manager allows his store to become dirty 
and remain so, the trouble is not confined to his store or to him 
alone, but all the other stores doing business under the same 
name suffer also. Thus discipline in a chain organization means 
the uniform observance of policies laid down by the central 
office as wise and proper. 

If it is decided that stores should open at eight o'clock, there 
should be no exceptions without excellent reason. It is easy 
to see that a customer who is used to buying from one store in 
the chain which opens at eight o'clock would not be pleased 
on going to another store in the same chain to find that it opens 
at nine. If a clerk in one store of the chain sends away a 
disgruntled customer, that customer will hesitate to go to 
another store in the chain, no matter how amiable its clerks 
may be. 

A high morale enforces discipline because the clerks can be 
brought to see that discipline must be enforced for the good 
of everyone concerned. Rules and regulations become but 
printed words without effect unless there is some method of 
enforcing them. The best method yet found lies in the interest 
of the employee to obey them without constant inspection. The 
methods of building up morale, previously described, should 
have, therefore, as one of their first effects, the maintenance of 
discipline. 

Teamwork. — Teamwork is an essential part of chain store 
organization, especially since the organization must of necessity 
be so loosely joined. Therefore, another beneficial result of 
maintaining a high morale is a spirit of cooperation, not possible 
to define in so many words, but possible to understand. A 
chain of stores is a very sensitive mechanism and only the most 
careful attention to routine makes it possible for it to function 
well and efficiently. Thus, cooperation between all links of 
the personnel is a fundamental requisite. 

A chain which does not possess the goodwill of its employees 
may be counted a failure. No matter how methodical and 
machine-like its methods of supervision, it cannot substitute 
methods for men. A chain store organization must build up a 
structure of personalities, not of mere store fronts. 



MAINTAINING MORALE 231 

A high morale creates interest in the work because it points 
out where the employee may better himself and get in line for 
rapid promotion. The best system of morale is one which points 
out where the individual himself can benefit. The fundamental 
idea is to work together for the benefit of each one. 

Conclusions. — The question of morale lies between the 
employer and the worker. Although it is to the ultimate benefit 
of both parties, the incentive and the control must be furnished 
by the management. The employee must in a variety of ways 
be made to feel: 

1. That the enterprise is his. 

2. That he is fairly treated. 

3. That he has a just share in the proceeds. 

4. That he has a genuine interest in the purpose of the concern. 

5. That he is interested in the work itself. 

The composite effect will show itself in an excellent esprit de 
corps. This morale, in turn, will cause greater sales effort, as 
well as better coordinated sales effort. In fact, for the loosely 
jointed chain organization, the practical alternatives are between 
creating and maintaining good morale and suffering under the 
hardship of the indifference and even hostility of the employees. 



CHAPTER XV 
THE STORE MANAGER 

Outline 

Requisites. 

1. Personal. 

(a) Interest in work. 

(h) Oblivious of long hours. 

(c) Courtesy. 

(d) Honesty. 

2. Managerial. 

(a) Sales personality. 
(6) Ability to handle subordinates. 
(c) Judgment. 
Duties. 

1. Clerical. 

(a) Make daily reports. 

1. Sales report. 

2. Merchandise requirements. 

3. Expenses. 

4. Miscellaneous. 

2. Financial. 

(a) Responsible for receipts. 
(6) Responsible for stock. 

3. Moral. 

(a) Make store connecting link between corporation and customer. 

4. Managerial. 

(a) Store neat and clean. 
(6) Stock properly arranged and tagged, 
(c) Service to customers. 
Authority governed by 

1. Policy of company. 

2. Size of chain and degree of personal supervision. 

3. Size of store. 

(a) Large store manager's considerable authority. 

1. Refund money. 

2. Cut prices. 

3. Make purchases. ^ 

4. Employ help. 

5. Arrange stock. 

6. Etc. 

(6) Small store's small authority. 
1. Close supervision. 

232 



CHAPTER XV 
THE STORE MANAGER 

No man succeeds in anything he does unless he is interested 
in it. Few men are satisfied unless they can increase their mone- 
tary compensation as a result of their own efforts. The ordinary 
man prefers to work for himself rather than to work for others. 
There is much disagreement among chain organizations as to just 
what the final secret of success in chain management is, but 
the consensus of opinion on the greatest weakness of the chain 
is unanimous. The chain is strong in proportion as it holds the 
undivided and whole-hearted allegiance of its store managers. 
If a branch store is to compete successfully with independent 
stores, the man in charge of that branch must feel he is able 
to earn as large an amount of money as the owner of the inde- 
pendent store next door. 

All chains recognize that some inducement must be held out 
to the store manager. He must be given a bonus, a commission 
on sales, or encouraged by some other expedient into devoting 
himself completely to the interests of the chain. In return for his 
services as evidenced by increased sales, more rapid turnover, 
etc., the manager receives a larger return, a more profitable 
store to manage, perhaps advancement into the central 
organization. In other words, the chain organization must 
keep the road to promotion wide open. Any stoppage 
along the route means stagnation. The progress of the store 
manager is unmistakably evident to the executive at headquar- 
ters by the figures as to that store. 

Choosing the Manager. — What kind of a man is needed by the 
chain in order to train him into a capable and efficient store 
manager? Mr. Wool worth said: ^^I prefer the boy from the 
farm to the college man. The college man won^t start at the 
bottom and learn the business.'' This may be a prejudiced 
view, but it represents the statement of opinion of one of the 
great chain store pioneers. And every man in the Wool worth 

233 



234 . CHAIN STORES 



mfBPT 



organization must at some time have served behind the coun 
For every position there are two understudies, and each place is 
won by merit. It is a rule never to go outside the organization 
for a manager or higher position. 

When the Penney organization wants men, the following 
advertisement appears in local papers: 

''Men wanted. Well established mercantile concern, operating 313 retai] 
stores, offers: 

1. Long and continuous hours of work. 

2. The work itself, hard, ceaseless, trying, testing. 

3. The work drive unrelenting, day in and day out. 

4. And for it, a small living salary, perhaps less than you are getting 
now.'' 

Mr. Penney says: 

"I have generally found the young man coming from the small towns 
of the Middle West making the best all-round men. They have not been 
spoiled by big cities and they know how to live within their income. 

"The men in our organization must not drink, gamble, or smoke 
cigarettes. We like to get college men. 

"A man is started as a salesman behind the counter. We learn to 
know him and he learns to know us. If he makes good, time will come 
when he is put in charge of a store, usually an offshoot of the one where 
he has been working. The next time he changes, he gets an interest 
in his first store. If he doesn't have money, we lend it to him. If he is 
a big success in that store, he can then start other stores." 

These statements are enough to show what two authorities 
think. President Wattley of the National Drug Stores believes 
in young men, constructively trained, carefully watched, properly 
placed, and backed by the corporation. He himself had formerly 
picked the managers for the Liggett stores. His requirements 
for a manager are that he should have a pleasant personality, 
ready courtesy, and be strong in discipline — a man who can 
enforce his discipline with a smile, is, according to him, the one 
who makes the 100 per cent, success. 

Briefly^ chains acquire new employees — 

1. By offering inducements to men already established in other chains, 

2. By taking in men who have already had retail experience in other 
lines, 

3. By training a force of their own. 



THE STORE MANAGER 235 

B}> such means the chains have, as a general rule, succeeded 
in acquiring a sales and managerial force far above the ordinary 
retail average. 

The third method is the one usually employed by the large 
chains and as far as possible by the smaller organizations. If 
a chain expands faster than the personnel can be adequately 
trained, then men must be sought outside, but it may prove as 
dangerous to expand without adequate and capable personnel as 
it is to expand without sufficient financial reserves. 

The first method is sometimes used, but the user runs great 
risk of incurring the ill-will of the chain from which the men 
have been taken. 

The smaller chain can maintain personal contact with the 
store managers, while the larger chains must rely on methods. 
Therefore, the large chain must exercise double care in putting 
its trust in a man who controls stock amounting to thousands of 
dollars. 

The Duties of a Store Manager. — The duties of a branch 
manager vary in accordance with the size of the chain, the policy 
of the organization in regard to delegating authority, and the 
individual capability of the man in charge of the store. A good 
manager will always find things to do outside the strict inter- 
pretation of his duties as outlined by the central management. 

A store manager will, in all cases, have to make daily reports, 
he will have to see that cash taken in is banked, he will be re- 
quired to keep the appearance of his store as neat, clean, and 
attractive as possible. He may have the responsibility of hiring 
the clerks. He may or may not settle for overhead expenses. 

The efficient store manager knows that, in the last analysis, 
his success in that position which he holds lies in the hands of 
the purchasing public, and that the way to attract the public 
is to give them service. A chain store, of course, can give service 
in many other ways other than by delivering goods and extending 
credit. A low price is a form of service, a well-arranged and 
complete stock is another form of service, and courtesy to the 
customer is still another form. And at this point we might men- 
tion the effect of the manager's personality as a form of service. 

Authority. — The direct control which the manager has over 
his store is delegated to him by the central organization as its 



236 CHAIN STORES 

agent. Thus the first great point in deHmiting the authority 
the branch manager is the pohcy of the company in this respect.] 

1. Company policy. Some chain systems regard a store' 
manager as merely a clerk over whom supervision must be 
exercised by other means than direct personal control. He maylj 
not be allowed to hire clerks, to make any purchases, or to with- 
draw any money from receipts for contingent expenses. There 
is no universality or standard practice used in regard to branch 
managers. 

2. The size of the chain. Generally speaking, the smaller 
the chain, the smaller the responsibility of the store manager. 
Thus if the chain system were confined to a single town, the 
manager would probably not be allowed to make any purchases. 
All goods would come to him direct from the main warehouse. If 
a package were broken, he would have to keep the actual package 
for the inspection of the management or else be charged with 
the retail price of this package. He would employ no help, as 
the central organization would do this. However, this is not 
confined to small chains, since the United Cigar Stores train 
salesmen themselves and then distribute them to member stores. 

Where a number of branch stores are close together under 
the constant supervision of a district manager, their authority 
will be less than where the units are broadly scattered. In the 
latter case, the manager may be almost autonomous. 

3. The type of product. The manager of a store containing 
large floor space and varied stock necessarily must have broader 
authority. He has more men and women working under him. 
His volume of sales is larger, his stock of goods is more valuable. 
He receives a larger salary. For example the manager of a 
branch dry goods store may have to have a large amount of 
authority. He may be authorized to refund money, make 
exchanges, cut prices to meet competition, increase advertising 
appropriations, employ extra sales help, sell loss leaders, divide 
departments to suit himself, employ and discharge help, raise 
and lower wages, purchase goods, veto price recommendations 
made by the home office, and select the goods he wishes to sell 
from samples submitted by the purchasing department. In this 
case, it is the manager who must meet the competition by adapt- 
ing his policies to meet local conditions. 



THE STORE MANAGER 237 

In a grocery store, we have the other extreme. There are 
often many of these stores belonging to one organization in a 
community. The store manager has no authority as to what 
he shall sell or the price at which he shall sell. The manager is 
there to see that instructions from the warehouse or buyer as 
to prices and goods to be sold are carried out. The goods from 
the warehouse are invoiced to him at retail prices and he must 
sell his quota. 

The manager of a shoe store carrying a branded, advertised 
line might be required to conduct his store according to strict 
rules laid down by the home office as to prices and advertising, 
but he has latitude in his choice of styles to sell and his method 
of selling them. 

As to the authority of a manager in a five- and ten-cent store, 
it is said that the manager of each local store is responsible to 
his district office, which in turn is under the central office, and 
from that office originate all important orders. The manager 
has little to say regarding the policies under which the store to 
which he is sent is to operate. He is transferred by the central 
office from one store to another, from one city to another, as his 
supervisor thinks best. As one manager put it: ^^If it isn^t a 
promotion it's a demotion, and it's not up to you to fuss about 
it.'' 

From what has been said, it is easy to see that no set rules 
can be laid down for limiting or extending the authority of the 
branch manager. In each case, it will be dictated by the policy 
of the controlling body as modified by circumstances. 

Moral Responsibilities. — The majority of chain systems have 
been able to create an esprit de corps which goes a long way 
towards offsetting the disadvantages experienced in finding and 
training branch managers. Such a spirit must exist if the chain 
is to expand and be successful. This feeling is obtained partly, 
of course, by arranging a scale of remuneration to fit the ambition 
of the type of man desired, but money alone would never be 
sufficient. There must be this sense of moral responsibility 
which the branch manager has for his store. 

The manager becomes a part of the system, on the one hand, 
and a part of the community in which the store is located, on the 
other. He is the connecting link between the impersonal chain 



238 CHAIN STORES 

and the customers. He wishes the chain to appear well in the 
eyes of the public, as judged through his store. Therefore, he 
keeps it neat and clean, and forgets to note the overtime he spends 
in making it attractive. He has a feeling of pride in the store 
and something very much akin to a feeling of ownership. The 
chains which make the yoke of the necessary accounting routine 
weigh as lightly as possible, and place the largest premium on 
the individuality of the store manager, have little difficulty in 
securing the loyalty of this branch of the personnel. The 
man who is working for himself pays little heed to hours or 
wages. 

Financial Responsibilities. — The manager is not only morally 
responsible for his store, but he is financially responsible. He 
must look out for the stock and for the money taken in from 
sales. This responsibility differs in actual practice. In some 
chains no one but the manager is permitted to open the cash 
drawer or make change. A clerk may take money from a cus- 
tomer, but he has to call the manager to put it in the cash drawer 
or make change. The rule may seem strict in this case, but it 
places all responsibility fairly and squarely upon the shoulder^ 
of the store manager. 

Usually a store manager should be required to put up a cash 
bond, and any shrinkage in stock which is unaccounted for is 
likely to be deducted from this bond. Allowance is made, of 
course, for shrinkages which are unavoidable in any chain.' 
Bonding should be required in chains where the responsibility 
of the manager financially can be adequately protected in this 
way. A manager with a great deal of authority naturally cannot 
measure his honesty by any such method, since his position alone 
is in the nature of a bond. But for the manager of a small 
branch store a bond is at once a gauge of his honesty and a guard 
against temptation. 

Ordinarily cash receipts from the daily sales in the branch 
store are put in the local bank. In some local chains cash is 
collected daily by an employee of the chain. In the Penney 
stores receipts are banked, subject to New York draft, three 
times a week. In some chains, the manager may be allowed to 
deduct sums necessary to pay current expenses, connected with 
the operation of the store. In other chains, a ^'contingent 



THE STORE MANAGER 239 

fund'' is provided for means of paying such bills and providing 
change. Every expenditure, however, must be vouchered, and 
each week the manager must make a report of the condition of 
the fund and send in his vouchers for verification. This permits 
depositing the results of each day's business in total and an audit 
of vouchers plus an examination of cash in the ^^ contingent fund" 
quickly establishes actual expenditures of the store. 

As a general principle, all money taken in by branch stores 
is concentrated at headquarters. This is done for two reasons: 

1. Purchasing functions are centralized in one place and all 
other major expenses, salaries, bonuses, etc., also are paid direct 
from the central organization. 

2. It is easier to teach the average man how to sell goods than 
it is to teach him finance. The less he has to do with financial 
responsibilities, other than those absolutely necessary, the better 
he performs his other duties. 

Knowledge of Stock. — Every properly trained store manager 
knows his stock thoroughly. This is a fundamental requisite 
of salesmanship and even although in the majority of cases goods 
in chain stores sell themselves without the aid or effort of the 
clerk in expressing their advantages, a knowledge of stock is 
necessary. Stock must be turned as rapidly as possible. The 
only way to secure rapid turnover is to specialize on those goods 
which have shown themselves to be best sellers. 

But in all cases there will be some goods that move faster 
than others. The manager who can keep the slow stock turning 
over is the most valuable. Thorough knowledge of stock is 
required before the manager can order properly. He must be 
able to tell what will sell in his locality. Putting aside all ques- 
tions of local preferences and seasonal preferences which are 
treated elsewhere, it is the duty of the manager to serve as the 
local interpreter between the public and the chain's purchasing 
agent. In the majority of cases the chain manager is allowed to 
pick out quantities of any article on the list sent out by the ware- 
house. The manager is supposed to be able to judge the wants of 
his customers and about how much they will buy. 

The problem of knowing stock varies, of course, immensely 
with the type of goods sold. The problem of a drug store 
manager is far more complicated than that of the manager of a 



240 CHAIN STORES 

grocery chain, or than in the case of a hosiery store or shoe store 
the sales of which are hmited to one product. 

Knowledge of stock requires a proper care for details. Price 
tags should be properly fastened in place and changed promptly. 
It is bad policy to have a group of articles worth thirty cents 
marked ten cents because they happen to be occupying space 
formerly covered by a ten-cent article. 

The manager must see that the appearance of the store is 
maintained at the proper standard. He must not only notify 
the central office of articles running low, but he must see that 
these articles are properly arranged when they arrive. 

The Manager's Reports. — Daily reports should be made in all|j 
chains. The details of the report system, however, vary with 
the size of the chain and the type of product sold. The larger 
the chain, the more difficult it is to maintain personal contact 
with the branch stores. Hence it follows that the management 
must rely on statistical reports for its knowledge of the actual 
condition of a store. In small chains of five- and ten-cent stores, 
centralized within a comparatively small radius, where the owner 
is in almost daily touch with each store and knows the managers 
intimately, reports are valuable as checks on his judgment rather 
than as courts of last resort. It is almost as easy to over- 
emphasize the value of daily reports as it is to under-emphasize 
them. 

Suppose, in the first instance, we take the daily reports required 
from branch managers of a large drug chain. 

1. There is a daily sales report, showing all sales, cash and 
charges, and all receipts from sources other than cash sales. The 
total as shown by the report is deposited in the bank and the 
main office receives confirmation of this deposit from the bank 
direct. 

2. Managers are required to make copies of all orders for 
merchandise. One of these is sent to the main office and supplies 
a constant record of purchases which is used as a check for 
buying. 

3. Statement of condition of '^contingent fund^' is sent in 
daily, together with vouchers of bills paid. 

4. All invoices for goods purchased are sent to the main office 
and immediately on receipt are charged against the purchase 



THE STORE MANAGER 241 

account of the store. In order that they may be promptly 
audited and paid, it is necessary that receipt of the goods be 
estabhshed. For this purpose the quantities are omitted from 
one of the copies of the original order. When the goods reach 
the store, they are checked off on this sheet and quantities filled 
in. If there is breakage or other fault, mention is made on this 
sheet. It is dated as of the date of receipt of goods signed by 
and sent in daily by the manager. When this sheet is received 
in the main office, it is matched up with and attached to the 
invoice. 

Inventory and turnover will be discussed in a separate 
chapter. Full and complete account of a model system of reports 
for a grocery chain will be found in the chapter ^^Controlling 
Retail Outlets.'^ 

Service to the Community. — The store manager, as has been 
said, is responsible to the organization for the reputation of the 
member store in the community. His position is much harder 
than that of the ordinary independent retailer who knows local 
conditions, and whose hold on the public has been built up 
through long and intimate service. The manager of a chain 
store is at once a link in an impersonal organization and a personal 
representative. 

Some chains allow their managers to give special services 
at their own expense. Other chains make the manager conform 
to strict rule. The question of deliveries, for example, has come 
to be regarded in the light of a test of chain store efficiency. 
Managers in some chains are restricted so that they cannot 
make deliveries, even if the customer pays a price. The 
justification of this policy lies in the successful application. 
But there is and always will be a certain class of customer 
which wishes and demands service. As competition between 
chains becomes closer^ the question of increased service to 
promote trade is sure to come up. For example, one grocery 
chain of fairly large size has resumed delivery service, while still 
selling goods on a par with competing chains. Deliveries, 
needless to say, are limited to a very restricted district. 

Another disadvantage under which the chain store labors 
is that much of its trade, owing to the elimination of credits and 
deliveries, is transient. Yet, on the other hand, certain managers 

16 



242 CHAIN STORES 



1 



have been able to obtain a regular class of customers, notably in 
the grocery chains. 

This is where the personality of the manager shows its strongest 
results — in the manner in which service is rendered to the public. 

Conclusions. — One most important point has been already 
treated elsewhere, namely, the method of paying store managers. 
Although properly belonging here, it was thought better to 
put the discussion of the principles involved under the chapter 
on organization, in which the store manager plays a leading 
part. 

This chapter had been confined, as far as possible, to the 
store manager himself, and his duties towards the organization, 
and to the qualities which render him valuable to that organi- 
zation. But considered from any point of view, the store man- 
ager is a vital link in the chain store problem. It is necessary to 
give him the same initiative, incentive, and interest in the busi- 
ness that is possessed by the independent owner of a retail 
store. 



CHAPTER XVI 
WAREHOUSING AND PURCHASING RECORDS 

Outline 

Proper stock keeping. 

1. Form. 

(a) 5" X 8" stock card. 
(6) Kept in vertical file. 

(c) Index by commodities. 

(d) Separate card for each item. 

2. Statistical data furnished buyer. 

(a) When to buy. 

(b) How much to buy. 

(c) From whom to buy. 

(d) Approximate time of delivery. 
Counting stock. 

1. Schedule for counting. 

(a) Buyer or warehouse superintendent responsible. 

2. Routine methods. 
Cost records. 

1. Source of data. 

2. Routine of recording data. 
Price changes. 

1. Mark-up and mark-down voucher systems, 
(a) Book keeping entries necessary. 
Salvage. 

1. Salvage voucher system. 

(a) Routine practice. 

2. Necessity of reporting salvage immediately^ 
Processes involved in typical purchase. 

1. Buyer obtains information from stock cards as to 

(a) Time to buy. 

(b) Quantity to buy. 

(c) From whom to buy. 

2. Duplicates of purchase order. 

3. Figuring and handling of invoice covering a specific purchase. 

(a) Buyer's records. 

(b) Temporary invoice file containing 

1. Invoices not paid and not received. 

2. Invoices not paid but received. 

243 



244 



CHAIN STORES 



3. Invoices paid but not received. 

4. Invoices pending allowances or disputes. 

5. Invoices pending claims against carriers. 

(c) Receiving record. 

(d) Re-checking and figuring unit cost. 

(e) Entries on books of account and final payment. 
(/) Permanent invoice files. 



CHAPTER XVI 
WAREHOUSING AND PURCHASING RECORDS 

By John S. Fleek 

The warehousing question and the purchasing question are 
very closely allied. It is a constant process of check and balance. 
Stock in the warehouse must be kept at normal and the pur- 
chasing department must be informed whenever there is a 
shortage or threatened shortage in supply. As has been shown 
in the previous discussion of the principles involved in proper 
warehousing and purchasing, this problem is one of the most 
important in chain store practice. It remains in this chapter 
to throw some light on the practical working-out of a typical 
warehousing and purchasing problem. As grocery chains are 
by far the most numerous, one of them has been used to illus- 
trate typical accounting method. 

Warehousing and purchasing come down, in the final analysis, 
to careful records of inventories, receipts, and shipments of 
goods needed to supply the retail outlets. Stock-keeping and 
stock records should aim to give the buyer the following infor- 
mation : 

1. When to buy. 

2. How much to buy. 

3. From whom to buy. 

4. The rate of stock turn. 

5. Seasonal variations. 

6. Transportation routes and time between order and delivery. 

All these questions are likely to come up at any time and 
the ability to answer them correctly, quickly, and specifically 
is highly important from a financial point of view. Warehouse 
accounting is a prerequisite to intelligent buying and the conduct 
of the business as a whole. It gives the cash value of the goods 
on hand and indicates clearly whether the business can stand the 

245 



246 



CHAIN STORES 



strain of further purchases. It also forms a guide to the amount 
of insurance necessary to carry. 

Stock Keeping and Stock Records. — The question which im- 



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Page ^ C/ 
standing Order 


Maximum ^Q_ C/:U)JUL- 
Minimum !j CX^W^— 


Date 


On Hand 


Ordered 


Receipts 


Invoiced 
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Fig. 30. — Stock record card. 

mediately arises here is how to combine, in the most convenient 
form, both completeness and simplicity. One form, which may 
be recommended, employs a 5 X 8 in. vertical card (see Fig. 
30) with three main columns '^on hand,'' '^ ordered,'' and '^re 



J 



PURCHASING RECORDS 



247 



ceived/' A separate card is made out for every article carried in 
stock. At the top, this card bears the name and size of the 
article and the name of its source, whether manufacturer, grower/ 
or broker. Then it gives the maximum quantity of stock it 
is desirable to keep on hand of this particular article, and also 



Coffee 




Fig. 31. — Vertical stock card file. 



the minimum under which the amount of the article in stock 
must not be allowed to drop. 

All articles leaving the warehouse are entered on these cards 
which serve to give the buyer information as to when and how 
much to buy. With some routine buying of steadily moving 
staple items, a standing weekly or monthly order will serve 



248 



CHAIN STORES 



and, in that event, should be entered on the card. By having 
the man counting the stock and entering the quantity place his 
initials in the last column on the card, responsibility for a proper 
count is fixed. 

These cards are to be kept in vertical files and indexed by 
groups, preferably in the same order as in the price list. All 
books or files containing data about the merchandise should 
be arranged in exactly the same order, so that consulting the 
various files or books will cause the least amount of effort. After 
a clerk becomes accustomed to the order of arrangement, he 
turns to the item almost automatically. 

Figure 31 shows the arrangement of the cards in the vertical 
file. The headings on the cards, of course, can be varied at will. 

Counting Stock. — Readily moving items should be counted 
weekly for stock on hand. Those with a lower rate of turnover 
should be counted bi-weekly, and others only monthly. A 
schedule can be constructed putting into certain groups for stock 
taking all articles carried. For example, if business at the ware- 
house is usually quieter on Tuesday, Wednesday and Saturday, 
a schedule can be worked out with this in view as follows : 



Bi-weekly and monthly schedules taken on Tuesdays. 

Groups, V, VI, VII, VIII, IX, X, XI, XII. 
Weekly schedules on Wednesdays and Saturdays. 

Groups I, II, III, IV. 
The contents of the groups would be made up as follows: 



Weekly 




Bl-WEEKLY 




Monthly I 


I. Bacon, pork, lard 


V. 


Baking powder 


IX. 


Ammonia A 


Biscuits 




Canned meats 




Beverages ™ 


Butter 




Canned soup 




Canned fish 


Cereals 




Canned corn, tomatoes, 


X. 


Canned fruits 


Cheese 




peas 




Canned pork and beans 


Cocoa and chocolate 




Crisco and oils 




Canned vegetables, 


Coffee 


VI. 


Dried beans and peas 




misc. 


II. Eggs 




Dried fruits 


XI. 


Cocoanut 


Flour, meal, etc. 




Extracts 




Disinfectants and 


Milk 




Fish, salt 




drugs 


II. Soaps, laundry 




Gelatines 




Glassware 


Soaps, powder 


VII. 


Honeys, jams, jellies 




Paper 


Sugar 




Macaroni 




Polish 


Teas 




Relishes, pickles, etc. 


XII. 


Soda and lime 


IV. Yeast 


VIII. 


Soaps, toilet 




Vinegar 


Matches 




Spices 




Woodenware and sup- 


Salt 




Molasses, syrups 




plies 


Starch 




Tapioca 






Vegetables in season. 











PURCHASING RECORDS 



249 



Each chain would find it necessary to make a great many 
changes in the details of the arrangement outlined above but 
the fundamental idea can be adopted with little difficulty. On 
the basis as described here, the following control schedule can 
be made up for the month. 



First week 


Second week 


Third week 


Fourth week 


Tues. 


Wed. 


Sat. 


Tues. 


Wed. 


Sat. 


Tues. 


Wed. 


Sat. 


Tues. 


Wed. 


Sat. 


V 
VI 


I 
II 


Ill 
IV 
IX 


VII 
VIII 


I 
II 


Ill 
IV 
X 


V 
VI 


I 
II 


Ill 
IV 
XI 


VII 
VIII 


I 
II 


Ill 
IV 
XII 



Under ordinary circumstances, the buyer would be responsible 
for having this schedule carried out. He takes the cards out of 
the file on the proper date and gives them to the stock man. The 
stock man, in turn, makes a physical count of goods on hand as 
indicated by the card headings and enters the result of his count. 
Then he returns the cards to the buyer who looks to see whether 
he needs to make any purchases. 

If the buyer purchases anything he records the date and the 
quantity purchased in the order column, see Fig. 30. When the 
goods arrive the clerk who is responsible for receiving goods enters 
the date of receipt and the quantity. He may enter receipts 
first on a book and then enter the receipts later on the cards. 

Methods of Accounting to Arrive at Cost. — In order to give the 
management the information it needs to carry on the business 
intelligently, it is necessary not only to build up a stock system 
that will show the turnover of each item carried, the time to buy, 
and the amount to pay, but also, by means of a system of cost 
keeping, to obtain an accurate record in figures from the account- 
ing department of exactly where the business stands and just 
what is the cash value of inventories. This information should 
be current and, to be valuable, must be in strict agreement with 
the financial books. It should be available not only on the dates 
when the physical inventories at the warehouse are figured, but 
at all times. These stated physical inventories should then 
become only a check on the book values by the actual' count of 
stock. If the system is not defective, and if the discrepancy 



250 



CHAIN STORES 



between cash value of book inventory and cash value of physical 
inventory is slight, it is an indication that the records are working 
accurately. But if the discrepancy is great, there is a possibility 
of theft, which should be investigated. A large discrepancy 
usually is attributable either to theft, a poor system, or the care- 
less handling of a good system. 

The method here recommended is a simple one that has proved 
its value in cost-keeping of wholesale groceries and chain 
warehouses. 

The foundation of all subsequent accounts for merchandise 
is based on the correct initial figuring and recording of the cost 
of merchandise purchased; that is, the entries for merchandise 



FIRM 


QUAN 
TITY 


BRAND 




PRICE 


MDSE. 
DISC. 


FRT. 


CSH 
DISC 


FIRST 
COST 


CHANGE 
COST 


RE- 
TAIL 


% 


































Fig. 32. — Page from cost record book. 



on the merchandise account must be at the correct cost figure. 
For simplicity of illustration, various classifications of merchan- 
dise are not separated into separate accounts. 

A cost record book is kept by the buyer or buyers. This 
book is indexed in exactly the same way as the price lists 
and card file. For a sample of convenient headings see Fig. 
32. These include all the necessary information for those who 
desire it. 

When the goods are received, the buyer figures their unit 
cost (taking net invoice price, not including cash discount, 
freight, cartage, and the like) and enters such data in the cost 
record book. At the same time he enters also the selling pric^ 
in the book. In this way, the cost record book and records 
hereafter used for figuring cost of merchandise items in detail will 
give a unit cost that will correspond in proper ratio to the total 



I 



PURCHASING RECORDS 



251 



cost as entered in the merchandise account by the bookkeeper. 
For example, the following bill is received. 



To 

2% 10 days 


Jno. Jones Co. 

Date 




10 Boxes Curfew Corn.. . 


Price per Doz. 
$1.50 


Quantity 
20 


Extension 
$30.00 
6.00 


Less 20% trade discount. 

Net 

Less 2 % 






24.00 

.48 




23.52 



The following freight list is for this shipment. 



B. & A.- 
To 


—Freight Bill 

From Jno. Jones Co. 


10 Boxes Canned Corn 


Weight 
500 


Rate Amount 
48 $2 . 40 





The bookkeeper makes the following entries. 
Mdse. purchased Freight & Cartage Discount on purchases 



$24.00 



J. 40 



$0.48 



The buyer makes the following entries in his cost book. 



Firm 


Brand 


Si- 
ze 


Un- 
it 


Price 


Mdse. 
disc. 


Frt. 


Cash 
disc. 


First 
cost 
net 


Change 
cost 


Sell 
price 


% 

Mark 

up 


Jones 


Curfew 


2 




$1.50 
per 
doz. 


20% 


.01 


2% 


.11 




.15 


26% 


1 






i 









252 



CHAIN STORES 



And the above results he writes on the bulletin,, discussed in 
detail later, as follows: 



Item 


Cost 


Retail 


Curfew Corn " 


.11 


.15 





From this the clerks concerned in the office enter the informa- 
tion on their cost and selling price lists. 

Now assume that store No. 5 orders five cases of this corn. 
This order comes in on the regular order blank which is described 
in the section on retail accounting. 

When this order has been filled and checked out by the ship- 
ping clerk, it comes back into the office to the cost clerks to be 
figured. From their price lists, which correspond exactly with 
the cost record book of the buyer, they enter as follows: 



Order Blank 
Store No. 5 


Units 


Cost 


Retail 


Price 


Amt. 


Price 


Amt. 


5 Cases 


120 


Curfew Corn 


.11 


13.20 


.15 


18.00 


Cost figures— WBC 
Retail— DEF 


Posted By 
GH 


Retail 
Cost.. 
Profit 






$18.00 

13.20 

4 80 






Gross. . . . 























I 



From this order blank the bookkeeper enters 

Mdse shipment A (Cost) Mdse shipment B (Profit) 



$13.20 



$4.80 



Store No. 5 



$18.00 



PURCHASING RECORDS 



253 



Now, let us suppose the fiscal period is at an end. A physical 
inventory is taken; and Curfew Corn is typical of every item in 
stock. The stock in the warehouse is counted and found to con- 
sist of five cases. This quantity is entered on the inventory 
sheet by the man counting stock. The inventory sheet is sent in 
to the buyer (or his assistant) to be priced. He refers to his 
cost record book (if the market remains unchanged) and enters 
the price on the inventory. It is next extended as follows: 



Description 


Unit 


Price 


Extensions 


5 Cases 


Curfew Corn 


120 


.11 


$13.20 


Totals . 








$13.20 



Since the assumption, for the sake of simplicity, is that Curfew 
Corn represents the whole stock of merchandise, the bookkeeper 
takes $13.20 as the total merchandise inventory for closing his 
books. 

It can now be determined how near the book inventory is to 
the physical inventory. The bookkeeper closes into simple 
^^merchandise trading account ^^ the merchandise purchased and 
merchandise shipments at cost and freight on purchases. 



Merchandise Trading Account 


Purchase 

Frt. on purchase . 

Book Val. Inv. . . 


$24.00 

2.40 


Mdse shipment A at cost. 
Balance 


$13.20 
13.20 


$26.40 


$26.40 






$13.20 





The book value of the inventory is now seen to be the same 
as the actual value after a physical count has been priced and 
extended from the cost record book. In other words, the cost 
and price lists have been kept in such a way that they tally with 
the accounts of the bookkeeper. The records used for the daily 



254 



CHAIN STORES 



figuring of merchandise transactions in detail are seen to corre- 
spond to the books of accounts, and these figures taken off the 
books at any time (on short notice) can give a virtually accurate 
statement of actual condition. This is of great advantage to 
the management; for it gives at any time the following data: 

(a) Casli (book) value of merchandise inventory (warehouse) at cost. 

(b) Shipments to the company's retail stores at cost and at retail. 

(c) Book profit (Gross) for the whole business and per store. 

Price Changes. — The above case assumed is a simple one and 
an ideal one. As a matter of fact, the market is shifting up or 
down a great deal; and besides, goods are constantly deteriorat- 
ing in the warehouse stock. It is necessary, therefore, to set up 
two more accounts ^^ Warehouse Mark-ups and Mark-downs'' 
and ^^ Salvage.'' 

In the case of the first, suppose that the buyer now purchases 
ten cases more of Curfew Corn. This time he pays $1.80 per 
dozen, less 20 per cent, for it. When he comes to figure his 
invoice, he finds he must raise his cost from .11 to .13, and his 
selling price from .15 to .18. Then he makes the following 
entries. 

I. In the cost record book he rubs out the old figures, which 
were in pencil, and puts in the new ones, in pencil also. 

Canned Corn 



Firm 


Brand 


Si- 
ze 


Un- 
it 


Price 


Mdse 
disc. 


Frt. 


Cash 
disc. 


First 
cost 
net 


Change 
cost 


Sell 
price 


% 


Jones 


Curfew 


2 




SI. 80 
doz. 


20% 


.01 


2% 


.13 




.18 


22%' 



II. On the daily bulletin he makes the following announcement : 



Curfew Corn 

Old cost 11 

New cost 13 



Old retail 15 

New retail 18 



The cost clerks get their information and change the price 
in their books from this daily bulletin. Moreover, the clerk 



PURCHASING RECORDS 



255 



in charge of keeping the retail stores informed of price changes 
sends them out notice of the retail price change by the methods 
explained in detail elsewhere. 

III. On the warehouse mark-up voucher the buyer enters the 
item and the old and new unit cost prices and difference. He 
next signs and dates this and sends it to the stock man. The 
latter at once goes to the pile or piles of the merchandise listed 
on the mark-up voucher, gets the physical count, and at once 
turns it back to the proper person in the office, who figures it 
and then turns it over to the bookkeeper. 

The following entries, for example, are made on the warehouse 
mark-up voucher: 



Warehouse 
Mark-up Voucher 








No. 467 
Date 3-1-22 


Stock 
counted 


Articles 


Old 

cost 


New 
cost 


Mark- 
up 


Am't. 


Extension 


5 Cases 


Curfew Corn 


.11 


.13 


.02 


120 


2.40 




Totals. . . . 












2.40 





Stock costed on by 

Mark-down figured . .by. 

Entered mdse. cost by. 

Entered cost book by. 



The bookkeeper now enters : 

Warehouse Mark-ups and mark-downs 



No. 467 M. U S2.40 



Now let us suppose the 10 cases ordered the second time come 
in, and five cases are again sold to store No. 5. And let us 
suppose that immediately after this comes the periodic physical 



256 



CHAIN STORES 



inventory of the warehouse stock at cost. The books should 
show the following: 

Merchandise Purchases (Billed cost) 



Inventory $13.20 

Second Lot Purchased 28 . 80 



Freight and Cartage on Mdse. Purchased 



Second lot Frt $2.40 



Merchandise shipments A (at cost) 



Store No. 5 $15.60 



Merchandise shipments B (profit) 



Store No. 5 $6.00 

Store No. 5 



Mdse. Shipments $21 . 60 

Mark-ups and mark-downs 



No. 467 MU $2.40 



By transferring these into a single merchandise trading account, 
we have: 

Merchandise Trading Account 



Inventory 

2d lot purchased 

Frt. 2d lot 


.... $13.20 

.... 28.80 
2 . 40 


Shipments A (at cost) 

Balance (Bk. Inventory)... 


. $15.60 
. 31.20 

$46.80 


MU467 


2 . 40 




$46.80 


/ 


Inventory 


$31.20 





This gives a book inventory at $31.20. By actual count there 



PURCHASING RECORDS 



257 



should be 10 cases in stock. The counter enters this on an 
inventory blank and sends it to the office to be costed and 
extended. The buyer enters the cost from the cost record book 
at .13 per unit and extends as follows: 



lOcs. Curfew Corn — 240 cans 



.13— $13.20 



Similar entries on the credit side of the ledger should be made 
in case of a mark-down. 

Salvage. — The ^^ salvage ^^ account is set up for the following 
reasons and in the following way: 

Let us suppose that, out of the 10 cases of Curfew Corn, 24 cans 
or one whole case spoiled while in the warehouse before inventory. 
How is the merchandise to be credited? If the cans are 
^^ dumped'' and no count taken, there will be a discrepancy 
between book and physical inventories. Therefore, a salvage 
account is set up, and, to take care of this, a system of records 
known as salvage vouchers is inaugurated. 

Salvage Voucher 



No. 40 






Folio No 


To Date . . . 








Condition 


Quantity 




Cost Price 


Extension 




1 












































Disposition Entry made on books of account 

By By Date, 



The stock man has a pad of these vouchers in his desk. As 
soon as he finds any articles spoiled or damaged, he takes them 
out of the main stock and segregates them in a separate section 

17 



258 



CHAIN STORES 



called ^^The Hospital/^ At the same time, he fills out a salvage 
voucher and sends it in to the buyer or merchandise manager. 
The latter comes out and inspects the goods, determines whether 
or not they have a saleable value. He then orders disposition 
of them (whether to be dumped or held in hospital for sale at a 
price), indicates this on the salvage voucher and brings the 
voucher into the office with him, where it is figured and turned 
over to the bookkeeper. Merchandise is credited with the 
entire amount and salvage is charged. If any goods in the hospi- 
tal are subsequently sold, salvage is credited with the amount 
they have brought in. 

If we assume the loss to be 24 cans of Curfew Corn, the 
accounts are as below: 



Merchandise 



Salvage 



Salvage $3.12 



Curfew Corn $3.12 



In order to obtain uniformity, economy, and standardization, 
Warehouse Mark-Down and Mark-Up Vouchers, Warehouse 
Salvage Vouchers, and Warehouse Credit Memos should all be 
of the same size and fit the same size post binders. If a physical 
inventory is now taken, nine cases of Curfew Corn will be found 
in stock. Extended at .13 per can, they amount to $28.08. 
Thus the merchandise account closes correctly. 



Merchandise Account 



Inventory $13.20 

Second lot purchased 28 . 80 

Freight 2.40 

Mark-up 467 2.40 

$46.80 

Inventory $28.08 



Shipments A (at cost) $15.60 

Salvage 3.12 / 

Inventory balance 28 ^j' ' 

$46.80 



The greatest service the salvage account and salvage system 
renders is that it informs the buyer of spoilage, in whole or in 
part, as soon as it comes to the attention of the stock man. By 
this means, damaged goods can often be sold at once at a price 



PURCHASING RECORDS 



259 



whereas otherwise the goods might not be discovered until all 
saleable value had departed. When goods are sold from Hos- 
pital, salvage is credited and the buyer can reduce his salvage 
losses. This is particularly true in the case of vegetables, fruits, 
cheese, meats, butter, dried fruit, etc. 

Processes Involved in a Typical Purchase. — It seems appro- 
priate before leaving the warehouse problem to include a few 
remarks regarding processes involved in the typical purchase 
and receipt of goods. This will show how the various procedures 




Fig. 33. — Temporary invoice file. 

above mentioned dovetail into one another and tend to make the 
whole central organization function properly. 

The buyer learns from inspection of stock cards (or daily 
shortage list on daily executive report explained later) and 
subsequent reference to cards, that it is. time to make a purchase 
of a certain article of merchandise. From the information the 
stock card gives him, showing the average weekly, monthly, or 
seasonal sales of the past, the buyer determines what quantity 
to purchase. He then writes the order on his duplicate purchase 
order, referring to his cost record book for the previous cost, if 
need be. In the ^^ ordered'' column of the stock card, he enters 
the date and quantity ordered. One copy of the purchase order 
he keeps in his loose-leaf binder (preferably indexed alphabetic- 



260 CHAIN STORES 

ally according to firm name of source). The other copy he sends 
to the source — the manufacturer, grower, or broker. 

In the course of a few days, confirmation arrives from the 
manufacturer, and the buyer notes this on his retained copy of 
the purchase order and attaches confirmation to it. Later, the 
invoice arrives. The buyer should now compare the invoice with 
his purchase order and checks prices, discounts, and terms, mark- 
ing on the purchase order the date of shipment. It is recom- 
mended that the buyer have two loose-leaf binders for his copies 
of purchase orders; one for current orders not completely shipped; 
the other for orders completely shipped. 

If there are no discrepancies, he puts his O. K. on the invoice, 
notes in it the discount date, and turns it over to the clerk 
in charge of the temporary invoice file. 

The temporary invoice file should be arranged with the follow- 
ing sections, see Fig. 33 : 



1. Invoices not paid and not received. 

2. Invoices not paid but received. 

3. Invoices paid but not received. 

4. Invoices pending allowances or disputes. 

5. Invoices pending claims against carriers. 



I 



In each of these sections the invoices are to be kept loose and 
arranged alphabetically by commodities, in the same order 
as the price list and stock record files. This standardizes and 
facilitates the work of the clerk making entries. This provision 
gives a regular arrangement for every article carried, and the 
clerk, as stated previously, turns automatically to the right page. 
The office clerks have a mental picture of the order of the 
price book so that when they think of any item they immediately 
associate it with the standard place in the registered order 
of the lists and files. 

By having five separate sections, provision is made for 
paying invoices on the discount date, even if goods are not 
yet received, and for holding invoices pending a settlement before- 
putting in the permanent invoice file and, most important of 
all, for separating the invoices of goods received from those 
of goods not received. This last feature greatly aids the clerk 
who Ls checking receiving records against the invoices. 



PURCHASING RECORDS 



261 



To return to a strict discussion of the typical course of 
a purchase and receipt of goods, when the articles arrive at the 
warehouse, the stock man enters the quantity and condition on 
his receiving record, as described heretofore, and the duplicate 



BUYERS BOOKS 



FINANC//iL BOO/fS 



Purchase Orders 



Invoice of 
Billed Cost 



Freight or Cartage 
Expense Bill 



Buijer 



UnHCos-J- Figured 



Accounhng Department- 



Tofal Zob\ of Shipment Entered 



Cost Record Book 



Retail Store 
Price Lists 



Billed Cost 
Plus Freight 



Office Clerks 
Price Lists 



RETA1L5T0RE ORDER 
F OR MERCHANDIS E 

Unit Cost + Retail ?r\cee, 
Figured and Entered and 
Totals in Order 



Cash Discount 
As An Earning 



CO NTROL ACCOUN TS 

Totals On All Orders for the 
Day {Cost, Retail and Profit) 
Err^ered a Posted to Control Accounts 



INDIVIDUAL STORES 
L EDGER PA6E S 

Total Retail Charges to Store, 
and Total Profit Entered in a 
Memorandum Column 



Fig. 34. — Course of purchase order. 

copy of this he sends to the clerk in charge of the temporary 
invoice file. This clerk turns to the section ''Invoices not 
paid and not received/' picks out the invoice of this shipment, 
and stamps it received. He now enters the date and quantity in 
the ''received'' column of the proper stock card and then turns 
the invoice with attached freight or cartage expense bill over to 
the buyer. 



262 CHAIN STORES 

The buyer now refigures the net unit cost per item on the 
face of the bill and compares this with the figures on his cost 
record book. If there is any change he takes the necessary steps i 
by means of the mark-up and mark-down vouchers, bulletins, f 
etc., to bring all cost and selling price lists uniformly up to date, 
and then turns the invoice back to the clerk. 

If the goods are in stock for the first time, a new entry is 
made on the cost record book, and the information is put on 
the bulletin so that the addition will be made on all lists. 
The clerk now puts the invoice in its proper section of the 
temporary invoice file awaiting payment. In this case, it would 
go into Section Two. 

This clerk is responsible for seeing that invoices are paid 
at the proper time. One of his first duties is to go through 
the file and turn over to the bookkeeper for payment all the 
invoices due that day. The bookkeeper, after paying them, 
stamps them paid, and turns them back to the clerk who puts 
them either in the temporary invoice file (if goods are not 
received, or if some question is pending), or files them away in 
the permanent file. 

Conclusions. — This finishes the technical discussion of stock- 
keeping, stock accounting, and purchasing records. The three 
are interdependent in the processes of handling the merchandise 
from its source to the retail store. Figure 34 shows in chart 
form the various phases through which an order for purchase 
passes before the receipt of the goods is finally checked off on the 
individual stores' ledger. This chart might be used for various 
other types of chain stores, and is not necessarily confined to 
groceries, although if it were used elsewhere there would have 
to be modifications. 

The forms shown in this chapter are illustrative of 
a method now in use and should be used suggestively rather than 
copied exactly. If it merely indicates some ways in which a 
present system may be made to function more efficiently, the 
detailed explanation given will have served its purpose. 



I 



CHAPTER XVII 
SUPERVISION OF RETAIL OUTLETS 

Outline 

Uniform retail prices throughout chain secured by 

1. Price Usts. 

2. Daily bulletins. 

3. Retail mark-ups and mark-downs. 

4. Weekly change sheets. 
Price hsts. 

1. Figured by buyer. 

2. Sent to store managers. 
Daily bulletins. 

1. Containing 

(a) Changes in cost. 

(b) Notation of new goods. 

2. Duty of clerk to send copy to all store managers. 
Mark-ups and mark-downs. 

1. Routine practice. 
Weekly change sheet. 

1. Compilation of all changes on daily bulletins. 

2. Store manager held responsible for prices on weekly change sheets. 
Policing of retail outlets. 

1. Personal visits to store. 

(a) Check up prices. 

(b) Inspect care of store. 

(c) Check cash register. 

2. Physical inventory. 

(a) At regular stated intervals. 

3. Traveling auditors. 

Account methods for retail operations. 

1. Regular warehouse shipment order. 

2. Credit memorandums for goods returned to warehouse by stores. 

3. Daily reports of store managers. 

4. Use of special ruled cash receipt book. 

5. Use of periodic retail store inventories. 

6. Arriving at percentage of retail store profit. 



263 



CHAPTER XVII 
SUPERVISION OF RETAIL OUTLETS 

By John S. Fleek fl 

This chapter contains a model system of controUing retail 
outlets as used in a moderate sized grocery chain. Other methods 
are outlined in other chapters, but for a better understanding of 
the subject, it has been thought wise to follow out one system and 
one definite example throughout the whole process, in order that 
anyone really interested in the continuity of the routine followed 
may find it easier to understand. 

The framework of sound accurate accounting methods and 
of direct merchandise price control must be supplemented by fre- 
quent inspection in person by the store's superintendent and the 
chief executive. 

As the organization assumes larger proportions, the executive 
finds that haphazard supervision of checks and balances and 
policing can no longer obtain if he is to have efficient control of 
his business. A regular routine of duties needs to be established 
so that the individual store account will show actual conditions; 
the store managers sell articles at the price determined upon; and 
the superintendent and his assistants follow the stores properly 
and see that instructions are being obeyed. 

Uniform Pricing. — Uniform retail prices, as fixed by the central 
office throughout all the branch stores, are brought about by the 
following means : 



1. Price lists. 

2. Daily bulletins. 

3. Retail mark-up and mark-down notices. 

4. Weekly change sheets. 



fli 



Prices are established and proceed from the merchandise 
department. The buyer figures a unit cost on each article and 
then, by himself or by the advice of the executive department, 
the selling price (^^retaiPO- Both these figures are entered in 

264 



SUPERVISION OF RETAIL OUTLETS 265 

the Cost Record Book — see page 250 — which becomes a fountain 
head of all knowledge to the organization in so far as merchan- 
dise prices (cost and retail) are concerned. 

The office figuring clerks and superintendent are given com- 
plete price lists of all articles carried, for these individuals must 
have constant records of such information. 

Retail store managers are likewise given complete price lists, 
which are virtually copies of the cost record book, and identical 
with the office price lists, except that only the retail prices appear 
therein. The store managers thus know the price at which to 
sell every item and can put price tags on their shelves accurately. 
Were it not for the fact that prices are constantly chang- 
ing and articles being added to or taken off the selling list, 
the problem of price control would be solved merely by issuing 
the lists to the retail managers. But the solution is not so 
I easily achieved and the problem thus becomes one of providing 
( for getting the changes that are known in the office and there 
' recorded in the Cost Record Book to all the books of all the 
; retail store managers. This dissemination of information is 
I brought about by means of (a) the daily bulletin, (b) the retail 
I mark-up and mark-down notices, and (c) the weekly change 
sheets. 

(a) The Daily Bulletin is kept in a diary form at a central 
point in the central offices, so that the office clerks may have 
ready access to it. In it the buyer enters changes in cost and 
selling price of the articles carried in stock from the data on his 
Cost Record Book, and makes notation of new goods just arrived, 
giving their cost and selling price, and of goods no longer carried. 
The office figuring clerks make the changes on their price lists 
from this information and initial the entries on the Daily Bulletin 
to show their responsibility for having brought the lists up to 
date. 

In order to get this information out to the stores at a given 
time each day, it is the duty of one clerk to make copies of the 
Daily Bulletin page, recording only retail prices, and to send them 
out to all the retail managers. 

If speed is desired in transmitting the price changes^ the retail 
managers can be given the latest prices over the telephone, 
having the messages confirmed later by a copy of the Bulletin. 



266 



CHAIN STORES 



(6) The same clerk makes out mark-ups and mark-downs and 
prepares notices for all the stores from the information on 
changes. When the store manager receives a mark-up or a 
mark-down notice, he counts his stock of the articles enumerated, 
signs the sUp and returns it with his next daily report showing the 
additional merchandise charge or credit on this report. See 
Figure 35. 

(c) Weekly Change Sheets are made out every Saturday and 



MARK-UP VOUCHER 



N? 203 



STOCK COUNTED 




MAIN STOCK 


WARCHOUSa 


ruoK 


ARTICLE 


OLD 
PBICC 


NCW 
PRICC 


MARK 
OP 


oJJJ^iVr 






fUlOR 




rum 


CXTCNSIOM 






















































































































' 



















































































































































































































BY ORDFR OP 


DATS 








STOCK COUNTED ON 


aY 




MARK-UP F|<;URFD nfi 


. BV 




ENTERED HOSE. ACCT. ON 


BY. 




ENTERED COST-BOOK ON 


BY 



Fig. 35. — Mark-up voucher. 

mailed to the retail store managers. Figure 36 shows form in 
use in a grocery chain. These sheets constitute a compilation of 
all the changes, additions, corrections, and deductions that have 
appeared on the daily bulletins, and serve as an additional 
means of verifying the retail price lists and of bringing them 
up-to-date. The store manager is held directly responsible for 
selling his groceries at the prices given on the last change sheet. 
Consequently, as soon as he receives one, he should at once go 
over his price list with it, making the necessary changes and 
corrections. 

It is understood that prices on these lists will be entered in 



SUPERVISION OF RETAIL OUTLETS 267 

Change Sheet No. G and Weekly Bulletin 
histructions. 

This Change Sheet is issued at the same time that Price List No. 1 
is given to you. Go over your price list at once with this Change 
Sheet and make the necessary additions and corrections on the price 
list as per instructions in general order attached. 

2. These are the changes of the past week. Owing to the length of 
time it took to get the Price List printed, it comes to you a week late. 
Hence you have all these changes to make at once. 

3. Biscuit Lists for Loose- Wiles and National will be sent out in a 
few days. 

Price Changes and Additions 
Ammonia and Bluing 

New Sawyer's Bluing, large 25 

Butter, etc. 

New Diamond Oleomargarine 31 

Change Butter tubs 63 

Canned Goods 

New Star Boneless Herring 19 

Change Red Salmon 35 

Change Tomatoes No. 2 11 

New Libby Tomato Soup OS}i 

Cheese 

New Blue Ribbon, cream 17 

New Blue Ribbon, pimento 17 

Change Mild 37 

Change Young America 39 

Cocoa and Chocolate 

New Bensdorps Cocoa, 2 oz 14 

Change Beck cocoa, unsweetened 25 

Change Beck cocoa, sweetened 29 

Crisco and Oils 

Change Mazola, pts 33 

Eggs 

New Monogram eggs 72 

Fish 

Change Beardsleys Shredded Cod 34 

Flour, etc. 

Change King Arthur, 123^ 1.15 

Change King Arthur, 243^ 2.20 

Change Aunt Jemima, pc 20 

Change Rice, Flutter, pk 123^ 

Change Corn meal, pkg 05)^ 

Change Corn meal, bulk 05 

Etc. 

Fig. 36. — Form of weekly change sheet. 



268 CHAIN STORES 

pencil to facilitate making the many alterations now so fre- 
quently necessary. 

Thus, by daily bulletins, mark-up and mark-down notices, 
and weekly change sheets, all price lists in their several degrees 
of completeness are made to conform with the latest entries on 
the Cost Record Book, and thus a system of merchandise and 
price control is established. 

Policing of Retail Outlets. — Constant personal supervision 
and policing of the retail branches is necessary; for in no other 
way is the central office to know whether instructions are being 
obeyed and whether the store managers are honest. To provide 
this, the store superintendent tries to visit each store every day. 
On such trips he will check up the prices and price list of the 
manager, will inspect the store for cleanliness, window displays, 
appearance, and general marketing methods, and will get a check 
on the cash register. 

It is distinctly desirable that the superintendent take a 
physical inventory of each store at least once a month. This 
shows up leakage through carelessness and dishonesty in an 
undeniable manner. If goods are charged against a store at 
retail from the first of the month, to the amount of $500, and 
at the time of inventory the cash register shows sales at retail 
amounting to $400, clearly the store should have an inventory 
that, when figured at retail amounts, should come to $100. 

Many chains have traveling auditors who visit branch stores 
at specified or unexpected times and take inventory. 

Accounting for a Retail Grocery Store. — In the development of 
a system of accounts to provide the needed information and 
checks upon retail outlets, it is well to consider what would 
happen if a new branch were being opened, which we may call, 
for purposes of illustration. Store No. 35. 

The store manager sends to the central office his initial order 
on the company's order blank. See Figure 37. The order is 
registered and goes out to the warehouse to be filled. Here the 
shipping clerk '^checks ouf the order for store No. 35 as he 
loads the truck, seeing that the proper quantities and units are^ 
entered on the order blank. The driver takes a yellow copy of 
the order with the goods so that the store manager can check up 
the items delivered and can use it as a basis for giving a receipt 



SUPERVISION OF RETAIL OUTLETS 



269 































WAREHOUSE ORDER 








Store "No. 




—Sheet-No 










Manager 










1 


DATli ORDERED 1 DAT£ RECEIVED 1 AFPROVED 1 REGISTER NQ. 


DATE SHIPPED 


SHIPPING NO. 


te 


Quan 


Unit 




ARTICLE 


SIZE 


•BRAND 


Con 
tainec 


LOT 
NO. 


Price 


COST 
Extension 


Price 


RETAIL 
Extension 








1 






























2 
























^ 







^ 






_ 


V 














1 * 






1 


r , 






























40 






























41 
























RZIAIL PRICES CHECKED BT 
ri 1 r 1 


TOTAL. COST 


















PROFIT 














[3j RETAIL PRICES 

POSTED BY 


[4J COST BY 


RETAIL 




























ti] COST FOOTED BY 


16J COST POSTED.BY 


Store No. Receim T?Ar^Piv»^ 1 























Fig. 37. — Warehouse order blank. 



CREDIT VOUCHER 



No. 702 



To- 



No. ( . 



CONDITION 


QUAN. 
TITV 


ARTICLES 


QUAN. 
TITY 


SELLING PRICE 


COSTPBiqE 


PROFIT 


PRISE 


AMOUNT 


pri:e 


AMOUNT 
































1 










1 





_RecIcLon_ 



-8ur.vJj.d_oii_ 
.^Di3po8i.tion_ 



_£ixot_Due-to— 



_Appros:ed_J)y_ 
-J)ate 



R.R, CLAIM 
Claim Entered Against 



Datc_ 



Amount $_ 

Our ClalmJSo.. 

L-Bj 



CREDIT ANALYSIS 

1. Credit Entered on Bj__ 

Against 



2, Credit Notice Card sect 

On 

3, No NoUce Needed 

4, . 



Traffic Mfg. 

Fig. 38. — Credit voucher. 



270 



CHAIN STORES 



for the merchandise and comparison with the charge against 
his store. 

The white copy of the order the shipping clerk sends to the 
office to be extended. The clerks price and extend the order 
from their price lists, enter the totals for ^^ costs/' ^^retail/' and 
'^profit/' and the order is then ready for posting. 

Orders for the day are bound and numbered in a permanent 
folio and thus become part of the quasi-sales book, or folio 
number being used as a check in posting. Totals for the day are 
posted to the various merchandise accounts. 



Store N 
Jan. 1, : 


0. 35 
L922 










Folio No. 46 


Unit 


Article 


Size 


Brand 


Price 


Cost 


Price 


Retail 


100 


XX 


2% 


XX 


.80 


80.00 


1.00 


100.00 



Total cost $ 80.00 

Total profit 20.00 

Total retail 100.00 

The bookeeping entries are as follows for January 1: 

A. In case of the Journal for Control Accounts (daily total) 
Jan. 1, 1921 

Shipments to retail outlets $100.00 

To mdse. costs $80.00 

To mdse. profits 20 . 00 

B. In the case of Ledger page on Store No. 35 

Store 35 Page 142 



Date 


Folio 


Item 


Debit 
at retail 


Memo, 
profit 


Date 


Folio 


Item 


Credit 
retail 


Memo, 
profit 




1/1 


46 


Order 


100. 00 


20.00 


1/1 


Cm-16 


Return 


10.00 


2.00 




/3 




Daily 


4.40 


1.65 


/3 


c-61 


Cash 
sales 


26.75 










Report 






1/4 


1-14 


Inv. 


67.65 






/4 




Inv. 


104.40 
67. 6.5 










104.40 







SUPERVISION OF RETAIL OUTLETS 



271 



If now No. 35 sends back part of the goods delivered on Janu- 
ary 2, the receiving clerk makes out a slip on the credit memo- 
randum, see Fig. 38, entering only quantity and description. 
An authorized person then inspects the goods and determines 
whether credit will be allowed. If the credit is O.K^d, it will 
go to the clerks first to be figured (cost, retail profit) and then 
to the bookkeeper. 

Credit Memo 

Cm Folio No. 16 

To Date Jan. 2, 1921 







Articles 


Quantity 


Cost Retail 


Profit 


Condition 


Quantity 


Price 


Am't 


Price 


Am't 


O.K. 


10 


XXX 




.80 


8.00 


1.00 


10.00 


2.00 



These credit memos are put in a permanent folio and numbered 
When the credits are posted, the bookkeeper sends a credit 
memo post card to the store involved for its use in checking 
against its other accounts. The entries are as follows: 

In the Journal for the entire day, taking totals for the day 
from the credit memo folio. 

January 2, 1922 

Mdse. cost S8.00 

Mdse. profit 2 . 00 

To mdse. shipments to retail outlets $10 . 00 



For Ledger entry, see preceding page. 

The Daily Report from each manager, see Fig. 39, brings 
into the office the complete story of the happenings of the day. 
The retail business is on a strictly cash basis; hence sales are the 



272 



CHAIN STORES 



direct credit to merchandise at retail charged against the store's 
Ledger account. 

The daily stores report is in six sections. Section 1 shows 
goods bought and received by the store manager and mark-ups 
and mark-downs charged against his store through the central 
office. Section 2 shows the amount paid out for any merchandise 



MUST BE WRITTEN IN INK 






1 

fihp.et Nn. 1 






Register No ^ 


1 


Receiving Record 


No, 10460 

)ods received in the stc 
lal 'Warehouse-Shipine 
"and sign. 


Pnf^ 


1 


Managers are requested to enter all g( 

record was made out, which are not on origir 

If nothing is received, write Nothing 


re Bince previoua 

1 

1 


Quai 


1 

.Unit 


FROM ARTICLE 


COST 
Price Extepsion 


RETAIL 1 
Price Extension , 












i 


















\ 
1 


















1 




















p—l 
































1 


















1 

1 


RETAIL PRICES CHECKED BY 


TOTAL COST 












i 


(1) Cost Figured Ly '" " ' 


{ Z ; Cost verified by 


PROFIT 












1 


( 3 ) Retail Figured by 


( 4 ) Retail VerXied by 


RETAIL 












1 
1 














i 


( 5) Cost Posted Ly 


(C) Retail Posted by 




Sianaturt 


9. , ^nnaaer J 

















Fig. 39. — Manager's daily report. (Section 1.) 



that the manager has bought directly during the day. Section 3 
shows the amount paid out directly for expenses by the manager, 
and Section 4 rebates. A summary of transactions is made in 
Section 5 and Section 6 is a duplicate summary retained in the 
store by the manager. 

On the assumption that Store No. 35 is opened for business"^ 
on January 3, 1922, the Daily Stores Report should be sent to 
the office with the amount of cash equal to the day^s sales less 
deductions. Arrangements can be made with local banks in 



SUPERVISION OF RETAIL OUTLETS 



273 



1 

j MERCHANDISE TAID FOE 

1 

1 
1 

1 Store No. 


No. 1( 

$ Cts. 


3460 




, MANAGUR SIGNS EACH TRANSACTION 


SIGNATURE 




i 






1 


1 
























1 Write Total In Space Eelow 
















TOTAL TO BE ENTERED ON CaSD SHELT 






O.K. J 



EXPENSES PAID FOB 



MANAGER SIGNS EACH TRANSACTION 



"Write Total in Space Below 



I TOTAL TO BE ENTERED ON CASH SHEET 
I I 



j REBATES 

, ( This covers aU money refamJed or over charged, and all 
[ MANAGER SIGNS EACH TRANSACTION $ 


over-rlngB on Caeh Register ') | 
Cts. SIGNATURE } 










































1 Write Total in Space Below 
















TOTAL TO BE ENTERED ON CASH SHEET 


O.K. } 


Superintendent signs after baring examined and approved all ite 


ma In spaocB above } 


O. K.for all items-ahcyoe 


Supt 1 



Fig. 39. — Manager's daily report (Continued) . 
(Sections 2, 3, and 4.) 



18 



274 



CHAIN STORES 



1 

j CASH SHEET 

1 Put Bills of the same denomination together and face uj 
1 REPORT MUST BE WRITTEN IN INK 

1 

i 

! No. 10460 

] Store 

* fi^Q. .„ ._ Date. ... 


1 MANAGEE'S COPY 
[ REMEMBER 

1 Store No and Date Must 
be entered in 4 (four) 
places. 

i No. 10460 

j DatP. 


1 






1 

1 CASH Tft RANK 


$ 


Cts. 1 ? 


Cts. 


Bank 


1 

1 


Bills 
Silver 

Misc. 








Bills 
Srlver 
IVKsc. 
Total 

Mdse. 

Exps. 
Total 

Rebates 

Previous 
Statement 

To-day's 
Statement 


1 








[ Cash Enclaaed Herewith ' 

1 








1 








1 Total 

1 

1 

[ Total Merchandise Paid 








I 

1 Total Expenses Paid 








j Total Receipts for to-day 

1 

1 Salvage Slip Amount 








1 

1 

J Total Rebates 




I 




1 

1 

1 Previous Statement 




j 




] TO-DAi-S STATEMENT 

{ To be entered on nest Cash Sheet 








1 


1 To be entered on ne 


xt Cast 


Sheet 


1 Ma 


lager 




1 FIGURING OF REGISTER 
1 lo be entered by Superintendent 


} Store No. 
! MANA 


SEE 


1 Manairer'B Statement 


• Carefully 




1 -nlffprPtifiA 


! FILL IT OUT 




1 Cftflh on Hnnrt 


] CAREFULLY 










I (S^T*! - 






j ^ Si 


ipi. 







Fig. 39. — Manager's daily report (Continued) . 
(Sections 5 and 0.) 



SUPERVISION OF RETAIL OUTLETS 



275 



certain suburbs to collect the money from retail stores and 
place it on deposit. The total amount of cash sales is credited 
to the stores merchandise ledger account (see cash receipts). 
The report is received in the office by the bookkeeper who checks 
the managers, entries, counts the cash, checks for mark-up and 
mark-down items on Section 1, which he detaches and turns 
over to the clerks for figuring, making at the same time entries 
in the cost column for merchandise items paid for by store 
manager. This prevents the control merchandise account from 

CASH RECEIPTS 



DATE 


DESCf^lPTION 


CREDITS 


DEBITS 


v/ 


CASH- 
SALES 
RETAIL 
STORES 


SUNDRIES 


MOSE 
PUPCHASES 
DIHECT.OM 

STORE 


DIRECT 
RETAILS 
EXPENSES 


REBATES 


SUNDRIES NET CASH 


v/ 




v' 




V 




1/ 


\/ 




JAN. 3 


STOKE^35 


U2 


26- 


75 






V 




75 


t3; 


1 


00 














\ 


26 


vO 



I 





, , 












































CONTKOL M'uK 
TOTALS FOH JAN. 3 


1G0 


26 


75 




_ 


■1 




75 


^ 


1 


00 














40 


25 


0« 



Fig. 40. — Cash receipts book. 

being charged twice for items paid for by cash by the store 
manager. 

Section I now becomes a regular store order and goes into 
the folio binder for the day's business under direct shipment. 
It is given a folio number and is made ready for posting in the 
usual way. Later, when invoices arrive from the firms who have 
delivered direct to the store, they are checked against this 
section to ascertain their correctness. 

Let us suppose that all sections of the daily report sheet have 
been checked and figured, and duly prepared for the bookkeeping 
entries to follow: 

1. Cash receipts book, see Fig. 40. 

2. Postings from this cash receipts book are now made as 
follows : 



276 



CHAIN STORES 



1. See 1[B (Page 270) for Ledger Page on Store No. 35. 

2. Expense postings. 



Control — Direct Retail Store Expense 


P. 400 


Date 1 Date | 


Jan. 3 c-61 | 1.00 | | | 



Store No. 35 Direct Expense 


P. 435 


Date 








Date 








Jan. 3 


c-61 




1.00 











Three other control accounts should be filled in: 



Cash Sales of Retail Outlets 






P. 100 


Date 1 1 1 Date | | | 


1 1 1-3 1 


c-61 


1 Sales 


$26.75 1 1 



Mdse. Purchases by Cash Direct Stores 


P. 300 


Date 1 1 1 Date | | 


1-3 c-61 .75 


1 



Cash 




P. 40 


Date 








Date 








1-3 


c-61 




$25.00 











The next step in the accounting procedure is the use of the 
periodic inventory for the retail stores, see Fig. 41. The super- 
intendent and his assistants drop in at a store without warning 
and take a physical inventory. This is then sent to the central 
office and figured at retail by the clerks. When figured it is 
turned over to the bookkeeper for entry on the stores account. 
If all figuring were perfectly accurate and no dishonesty or 
mistakes occurred on the part of store managers, the inventory 
amount should correspond to the balance on this store account. 

In practice of course, this never actually occurs. Journal 
entries must be made to equalize differences between book retail 
inventories and physical retail inventories. 



SUPERVISION OF RETAIL OUTLETS 



277 



I 











«l 1 




















fii 

ill 






































































a, 


i's 


































1 >r 


































i f f 

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IN 

REMINDERS 
aed Goods Shelf 0. Butter Counter top and bottom 
al Shelf 7 . Ice Chest Insldo 
aters tops 8 . Ice Chest ComlqeB 
uters bottom 9 . Display table 
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CHAIN STORES 





















































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SUPERVISION OF RETAIL OUTLETS 279 

Let us assume that on the morning of January 4, before any 
retail sales are made, an inventory of Store 35 is taken. When 
figured this inventory amounts to $67.65. The bookkeeper 
would then put the inventory sheet in a permanent file, giving it a 
number. This, then, becomes the voucher for the subsequent 
entry on the books on Ledger Page 142 (See IfB). This being 
the ideal case, the book balance and the physical inventory 
agree. 

If now the management wants to know the profit on the busi- 
ness of Store No. 35, it can get a very close estimate by taking 
the difference between the Mem. debit and credit columns for 
profit on the Stores Ledger page, and getting the percentage of 
this figure to the net total merchandise charges for the month. 
This will give the percentage of gross profit on sales for the 
month. 

After the store has been running for some time, it will be 
found that physical inventories from month to month are approxi- 
mately the same. For this reason the percentage of gross profit 
or net shipments per store per month is substantially accurate 
for the gross profit on net retail sales. 

In order to arrive at the net direct retail revenue per store per 
month, the direct store expense account is deducted from the 
amount of gross profit (arrived at as above). Similarly, to arrive 
at the cost value of the retail stores inventory in making up 
monthly reports of condition a very close approximation can 
be had by deducting the same percentage of gross profit from 
the retail value of the inventory as figured. 

The profit on shipments of merchandise to the retail stores 
for the business as a whole can be taken as the gross profit 
for the entire chain, thus very largely disregarding the retail 
inventories. But it will be found, as stated above, that after 
retail outlets are once established, the total retail store inven- 
tories for the entire organization are, in the aggregate, about 
the same, from month to month. From control accounts, 
therefore, the monthly merchandise statement for the business 
can be made up with accuracy without considering the retail 
i inventories. 

kThe result would be for a chain, such as we have been describ- 
ing, as follows : 
I 



280 CHAIN STORES 

Retail value, shipments of mdse. to retail outlets. . . . . 

Cost ' . . . . 

Gross profits on — 

Retail store expense (direct) 

Net retail revenue 

Warehouse 

Office and management 

Fixed charges 

Misc. expenses 

Total overhead expense carried by retail outlets 

Net profit for the company on shipments to retail 

outlets 

Sales direct from warehouse^ 

Cost on sales from warehouse 

Net profit on sales direct from warehouse 

Aggregate earnings of the company 

1 Since wholesaling is not a regular business of the firm, its profits are 
treated simply as an additional revenue without bearing an allocation of 1 1 
general overhead burden. This is logical because so little expense is involved 
in making these direct sales. 

Conclusions. — This chapter considers the retail store solely 
from the point of view of the central management. From this 
point of view, therefore, the branch store is like a private soldier 
in the army. It must be taken care of, its wants must be admin- 
istered to, and, like the soldier, it must submit to discipline. 

The problem, as it presents itself to the store manager was 
discussed in a previous chapter. Here, the sole purpose is to 
make clear the routine of supervision exercised by the central 
ofhce in two ways : By personal inspection and by daily and other 
reports. If the process seems long and unduly complicated, it 
must be remembered that this system of accounting must serve 
as eyes and ears to the chief executive. A store to him is not a 
petsodality, it is a link in a chain, and he wants to know whether 
it is a strong link or a weak one. 

It is not claimed that the system for policing and accounting 
supervision outlined in this chapter is the best or even better 
than others which have been developed. But to the small 
chain proprietor, or any retail store owner who desires to brancji 
out with other retail outlets, this chapter should give some very 
definite ideas. 



CHAPTER XVIII 
CENTRALIZING EXECUTIVE CONTROL 

Outline 

Information needed by executive. 

1. Concerning purchasing and warehousing. 

(a) The stock of merchandise. 

1. Adequate supply. 

2. Items short. 

(6) Condition of warehouse inventory and merchandise account. 

2. Concerning central offices. 

(a) Accuracy and up-to-dateness of accounting statistics. 

(b) Billing clerk routine. 

3. Concerning retail outlets. 

(a) Cash sales of each store. 

(b) Warehouse shipments to each store. 

(c) Profit shown by each store. 

(d) Character of orders from each store. 

(e) Condition of retail inventories. 
Characteristics of executive reports. 

1. Brief. 

(a) Material concentrated, if possible, on one page. 

2. Up-to-date. 

(a) Preferably for preceding day. 

1. To catch trouble at its inception. 
The daily executive report. 

1. Cash sales. 

2. Daily cash balance in banks. 

3. Net operations retail, cost, and profit. 

4. Shortage report. 

5. Routine necessary to follow to get information. 
Weekly executive report. 

1. Commonly retail cash sales report. 

(a) Comparison of sales this week with same week last year. 
(6) Total for month this year and last. 

2. Connecting link between daily and monthly reports. 

(a) Indicate course of turnover and sales. 
Monthly executive report. 

1. Compiled almost entirely from books of account. 

2. Control account for 

281 



282 CHAIN STORES 

(a) Direct retail store expense. 
(h) Indirect retail store expense. 
3. Report gives statement of condition for use in 
(a) Administration. 
(6) Correction. 
(c) Planning. 
Comparison reports. 

1. Formulated at specific periods. 

2. Compare sales, profits, expenses, etc. 
Annual report. 

1. Contains 

(a) Balance sheet. 
(6) Income account. 
(c) Expense statement. 

2. Serves as final link in executive control. 



CHAPTER XVm 
CENTRALIZING EXECUTIVE CONTROL 

By John S. Fleek 

It is necessary to coordinate and combine all the separate 

activities and functions of the chain. The executive cannot be 

mothered with detail. He will not gain the benefits of these 

lethods of better administration unless the information collected 



EXECUTl VE 



Butter 



Ware- 
housing 



Office Manager 



Purchasin* 



Accouni- 
ing 



illinc 



ReiailS+oresSupf. 










Refail 
Sfores 
SelliRQ 


Inven- 
fories 


Policing 8c 
Enforcing 
Ins+rucfions 



Stock 
Keeping 



Stock 
Records 



Purchase 
Orders 



Mdse. 
Price 
Control 



Ware- 
house 
Acc'nq. 



Retail 
Acc'ng. 



Figuring a 

Approving 

Invoices 



Cost Record 
Book 



Fig. 42. — Route of statistical information for executive. 



at various points is concentrated at one place, in approved 
reports and at specified times. 

It is true that personal foresight at offices, warehouses, and 
branches cannot be dispensed with by a mere impersonal substi- 
tution of routine methods. But, irf order that the chief executive 
may exert his force at the right time and place, such a routine 
collection of data in the form of reports is almost necessary. 

Sources of information for necesary reports for the executive 
come ordinarily through three channels, the buyer, the office 
manager, and the superintendent of retail stores. These offices 

283 



284 CHAIN STORES 

may, in some chains, be divided up or given different terms, 
but the idea remains the same. The executive must have 
information obtained from purchases and inventories, finance 
and accounting, and retail sales by branch stores. Figure 42 
shows the progress of information and how definitely the route 
for each separate item of statistical data can be traced from the 
bottom of the organization to the top. 

What Information to Get. — The information for executive 
consumption which it is advisable and easy to compile appears 
under the following heads: 

I. Warehousing and purchasing. 

1. Is the stock of merchandise being kept up? 

2. If not, what items are 'Agoing short" on orders? 

3. What is the condition of the warehouse merchandise account, ware- 
house inventory, etc.? 

II. Central offices. 

1. Are the bill clerks keeping the work up-to-date? 

2. Is the accounting department keeping work up-to-date? 
III. Retail. 

1. What is the standing of each store in cash sales? 

2. What is each store doing in warehouse shipments? 

3. What profit is each store making? 

4. What number of orders are coming back from each store? 

5. Are profits large enough to carry overhead? 

6. What is the condition of retail inventories? 

Executive daily reports should, in general, concentrate all 
essential data on not more than one page. Such reports, when 
handed to the executive, give him a convenient and portable 
brief of the condition of his business in all its ramifications. 
Moreover, a report, to be really effective, must be up to the 
minute in the information it contains. It should readily reveal 
any maladministration . It should pave the way for future 
plans. For this reason, if a daily report arrives four or five days 
late, much of its constructive and corrective force is lost; for the 
evil it presents and brings out or emphasizes for correction has 
probably by that time ceased to be so obtrusively evident. 

Daily and weekly reports, therefore, should come to the execu- 
tive's desk on the day following that for which the figures are 
entered. Monthly and other periodic reports should be pre- 
sented within five or six days of the end of the month. Annual 



CENTRALIZING EXECUTIVE CONTROL 



285 



reports naturally take longer to compile, hut (certainly should he 
completed during the 30 days following the end of the fiscal 
year. 

The Daily Executive Report. — The daily executive report, 
appearing on the chief executive's desk by the forenoon of the day 
following that of the report, gives the brief outline of the course 
of business during the previous day. The executive not only 
gets a line on his retail stores, the buying, the accounting depart- 
ment from the daily reports, but he knows also that his office 
force is keeping its costing and pricing, expending and billing 
up-to-date. Otherwise the figures under ^^ shipments, '^ and 
'^direct credits'' could not be entered. 



Financial 
E>ooks 



Ban 
Book 



Store Managers 
Dailu Report 

Of 
Soles, Rebates, 
Expenses, Etc. 




Credit Memos 

On 
Returned Goods 



Cash Sales 



Store Managers 

Report Direct 

Shipments 



DAILY 

EXECUTIVE 

REPORT 



Net Operations, 
Retail,Cost, 
Profit 



Cash Balance 



Shortage 
Report 



Regular 

Shipment 

Orders. 



Fig. 43. — Process of making up daily executive report. 



Figure 43 shows the procedure required in obtaining the 
information for the daily executive report as it is made up from 
the various other detailed reports. It shows how the daily 
cash balance is found by consulting the bank book and the 
financial books; how cash sales are taken off the daily report of 
the store managers, etc. By studying this diagram, the appar- 
ently intricate processes of coordinating and concentrating 
accounts become far simpler. 

Figure 44 shows one form of daily executive report. This 
form is made up as follows: As soon as the warehouse shipments 
on regular retail store order blanks, the direct shipments from 
store managers^ reports, and the credit memos are figured and 
extended, the order clerks enter the totals for each store in the 
appropriate columns and give the algebraic sum (warehouse 



286 



CHAIN STORES 



shipments plus direct minus credits) for the net operations of 
the day. 

One clerk then goes through the warehouse shipment order 
































nAY 1 


LXLUUilVL KLPUKI ^^„ 1 

DATE 


STORE 


PD.OUT 


TOTAL 
CASH 
SALES 


SHIPMENTS 1 


DIRECT CREDITS | 


NET OPERATIONS { 


EXP. 


MD6 


COST J 


RtTAIL 1 


COST 


retail] 


COST 1 


RETAIL I 


COST 


retail] 


PROFIT 


1 

2 
3 

4 













































29 
30 












































TOTALS 













































Fig. 44. — Daily executive report form. 



nAV 














1 


nATF. 


EXECUTIVE REPORT 




DAILY CASH STATEMENT 


FOR BANKS 


NAT'L 


UNION 


CITY 


TOTAL BANK^ 


CASH 


OLD BAL 


















OLD BAL 


DEPOSIT 


















STORE 
RECEIPTS 


TOTAL 


















OTHER 
RECEIPTS 


CHECKS 


















TOTAL 


NEW BAL. 


















PD. MDSE, 




















PD. EXP. 




















PD. OTHER 




















NEW BAL. 






















INITIALS 




SHORTAGE 











Fig. 45. — Daily cash statement. 

blanks and lists, under shortage, on the reverse side of the report, 
the articles ((luantity and retail value) which the shipping clerk 
has marked ''short'' i.e. he has been unable to fill the order 
because the articles asked for have run out of stock. 



CENTRALIZING EXECUTIVE CONTROL 



287 



The clerks now turn the report in to the bookkeeper, who 
enters the amount of cash sales from the figures compiled from 
the store managers^ daily reports. Next he enters the daily 
cash balance figures on the reverse side of the executive report, 
Fig. 45. When the bookkeeper has done this, the report is com- 
plete and ready for the executive. Entries on the report are 
initialed by the clerks making them. The report can be con- 
veniently placed on three-ring binder paper and can be kept for 
permanent record by the executive in such a binder. 

Thus the executive has before him daily in a convenient, 
compact form, a summary of his business and an effective check 





REPORT OF RETAIL CASH SALES 

WEEKLY FORTHEiMONTH OF 192 






STORE NO. 


COMPARISIONS 


WEEKLY CASH SALES V 


TOTAL 

CASH SALES 

CURRENT 

MONTH 


THIS 
MONTH 
IN in? 


QDi3TA 
CURRENT 
MONTH 


-TO- 


-TO- 


-TO- 


-TO- 


-TO- 


-TO- 


1 




















2 




















3 
























































12 




















TOTAL 




















WAREHOUSE 




















AGGREGATE 
TOTAL 





















Fig, 46. — Weekly cash sales report. 



on its functions. By means of the shortage report, the buyer 
is checked; by means of the daily cash balance, the accounting 
department is checked, and the retail outlets are checked by the 
detailed information on the first page of the report. 

The Weekly Report. — Chains vary widely in executive ac- 
counting control, not so much in the information desired, but 
rather in the frequency with which it is desired and the complete- 
ness of the detail called for on the executive report. Generally 
it is not considered necessary to include any information on 
weekly reports except that dealing with cash sales. If the other 
items are not important enough to be listed daily, they can 
usually be put off until the monthly report. 

Figure 46 illustrates a common form of retail cash sales re- 
port to be filled in and submitted weekly. It is found convenient 



288 CHAIN STORES 

to consolidate this weekly report on one sheet for the current 
month and with the figures accumulating week by week. Figures 
for current weeks are compiled direct from the daily executive 
reports and put on three-ring binder pages for the executive 
control report book. 

As a guide and as a comparison, the first column shows sales 
for the same month last year, and the second column the quota 
or mark set for the month this year. The subsequent six columns 
are for the weekly record of sales and the final column gives the 
total for the month. 

The reason for six columns is to provide for such a month as 
October, 1921, beginning on a Saturday and ending on a Monday. 
Weeks are taken as beginning when the month begins and running 
until the next Saturday or until the end of the month. For 
example, two of the weeks reported for October, 1921, will 
contain but one business day. 

This cash report gives the chief executive information as to 
the volume of business his retail outlets are doing, in a desirable 
form, and in sufficient detail to give him the connecting link f 
between daily and monthly reports, which go more minutely into \ 
particulars. These consolida-tions enable him to ascertain what 
steps need to be taken immediately to force more sales and a 
greater turnover, at any one point or throughout his organization. 

The Monthly Report. — The monthly report provides a com- 
plete analysis and statement of the operations and conditions of 
business. It gives an operating statement in detail; and more- 
over combines all this information in a concise form on the two 
sides of a single sheet of the same standard three-ring binder paper 
for the executive's control report book. The form, see Figs. 
47 and 48, is almost self-explanatory, and is compiled almost 
entirely from the books of account, although it is possible to 
check the daily and weekly reports against it. 

The cash sales give the needed comparison with profits, years 
and quotas, as well as with the volume of shipments appearing 
in the columns to the right. The inventory column serves to 
show the turnover of each store. Direct expense is seen on the 
reverse side, Fig. 48, and is that part of the operating expense 
which can be chargeable directly to the individual store. It 
is well to keep this separate from the other entries of expense 



CENTRALIZING EXECUTIVE CONTROL 



289 



or overhead; for, it might be advisable sometimes to maintain 
a store that was doing only a little better than making its direct, 
or as they say in railroading, ^^out-of-pocket expense^' and con- 



TCTF.r.HTTVF. RKPOT^T FOR MOVT^T np 102 




CASH SALES 


PHYSICAL 


MERCHANDISE-SHIPMENT-OPERATIQNS 


SALES FOR 

MONTU 
192 _ 


VUOTA 

TUIS 
MONTH 


CtRRENT 
SALES 
NET 


GAIN 
OR 
LOSS 


ORIES 


AT 

RETAIL 


GROSS BOOli 
PROFIT 


DIRECT 
EXPENSE 


DIRECT 
RETAIL 
REVENUE 


OVERUEA 
ALLOCATE 
AT_^ 


O! NET BOOK 
DOPERATINC 


DATE 


AMT 


AMT 


% 


pROFll} 5g 


1 






























2 






























. 






1 ^ 
































F 


J 






^- 1 






II 




11 














" 














"r— 


12 






























TOTAL 




























WAREHOUSE 




























AGG.TOTAL 




























INCOME STATEMENT 


BALANCE SHEET | 


AGGREGATE BOOK PROFIT NET 






OFFICE CASH 






COMMON STOCK 1 






DISCOUNTS EAR^ED 






BANK CASH 






PREFERRED STOCK 






SUNDRY REVENUES NET 






ACCT'S REC'D 






SURPLUS 






WAREHOUSES 






NOTES REC'D 






UNDIVIDED PROFITS 






MARK-UP 






EQUIPMENT 






CURRENT PROFIT LOSS 






MARK -DOWN 






STORE FIXTURES 






ACC'TS PAYABLE 






CURRENT LOOK PROFIT AND LOSS 






WAREHOUSE FIXTU 


lES 




NOTES PAYABLE 






WAREHOUSE MDSE BOOK RECORD 






OFFICE FIXTURES 






OTHER LIABILITIES 






IN V. BEGINNING MONTH 






WAREHOUSE INV. 












PURCHASES AT BILLED COST 






RETAIL STORES INT 












FREIGHT ON PURCHASES 






AT COST 












TOTAL 






STOCKS & BONDS 












LESS SHIPMENTS OUT AT COST 






OTHER ASSETS 












BOOK INV. END OF MONTH 


















SHORTAGE TOTAL 




























SALVAGE ACC'T FOR MONTH 
























ES 














TOTAL ASSETS 


TOTAL LIABILITI 
II 



Fig. 47. — Monthly executive report. 

tributing a small amount towards making the total overhead. 
Though showing a net loss after deducting its ratio of overhead, 
such a store assists by increasing purchasing power, or, perhaps, by 
initiating business for the company in a new and heavily competi- 
tive locality. 

Thus, there must be a control account for direct retail store 

19 



290 



CHAIN STORES 



DETAILED EXPENSE STATEMENT, MONTH OF 




MONTH 


% 


TO DATE 


% 


DIRECT RETAIL.EXPENSE 














SALARIES, ST.OIIE MGHS. 


COMMISSIONS 














OTHER CLERK EXPENSE 














RENT 














MISCDIRECT CHARGES 














TOTAL DIRECT RETAIL^EXP.ENSE 














OVERHEAD BURDEN OR INDIRECTEXPENSE 














WAGES-RECELYING,.HANDHN(J, AND SHIPPING FORCES 


BOXES AXD WRAPPING 














OUTWARD FREIGHT AND CARTAGE 














TOTAL, RECV'Q.HANDL'G, SHIP'G EXPENSE 














SALARIES BUYERS 














OTHER UUYING EXPENSES 














TOTAL BUYING EXPENSE 














EXECUTJVJ&S SALARIES 














OFFICE SALARIES 














POSTAGE AND OFFJCE SUPPLIES 














.TELEPHONE AND TELEGRAPH 














OTHER MAT<AGEMENT EXPANSES 














TOTaL.M'GEM:NT and OFFICE EXENSES 














INTEREST 














RENT 














HEAT, LIGHT AND POWER 














TAXES 














INSURANCE 














REPAIRS OF EQUIPMENT 














DEPRECIATION OF EQUIPMENT 














TOTAL FIXED CHARGES 














MISCELLANEOUS EXPENSES 














LOSSES BY DEFALCATION 














ADVERTISING 














TOTAL OVERHEAD EXPENSE 






... 








TOTAL AGGREGATE EXP.ENSE 














NET SHIPMENTS 10 RETAIL OUTLETS 














GROSS BOOK PROFJT ON ABOVE 














LESS DIRECT RETAIL EXP-ENSE 














DIRECT RETAIL REVENUE 














LESS OVERHEAD EXPENSE 














KET BOOK RETAIL OPERATING PROFIT 












' 


BOOK I'UOEIT ON WHOLESALE SALES 














AGGREGATE BOOK OEERAXIXG PROFIT NET 















Fig. 48. — Monthly executive report (expense statement). 



i 



CENTRALIZING EXECUTIVE CONTROL 



291 



expense and one for indirect retail store expense. The expense 
sections on the reverse page of the report give in detail the figures 
for direct and indirect expense. 

This report, as made up, gives the executive an accurate 
statement of the situation each month and is in sufficient detail 



MONTHLY FOli THE YEAR 

COMPARATIVE NET BOOK PROFITS FROM RETAIL OPERATIONS 




STORE^^^l 


STORE 2 


STORE 35 


CURRENT 
TOTAL 


LAST YEAR 
TOTAL 


AM'T 


^ 


AM'T 


f 


AM'T 


% 


AM'T 


% 


AM'T 


% 


JAN. 






















FEB. 






















TO DATE 










































. 
















^ 




DEC. 






















TOTAL 






















LAST YEAR 






















GAIN OR LOSS 


















































Fig. 49. — Monthly comparison form (by stores). 






YEAR 

OGMPARATIYE RETAIL CASH SALES STATEMENT 




store'^i 




STORE'^33 


CURRENT 
TOTAL RETAIL 


LAST YEAR 
TOTAL RETAIL 


JAN. 


SALES 


INV. 


TURN. 




SALES 


INV. 


TURN. 


SALES 


INV. 


TURN. 


SALES 


INV. 


TURN. 


FEB. 




























TO DATE 




















































































1 






























DEC. 


























TOTAL 


























LAST YEAR 


























GAIN OR LOSS 








' 





















Fig. 50. — Comparative retail cash sales statement. 

to give him adequate data for use in administration. 

Figure 49 shows another form of monthly report used in cases 
where the stock problem is more complicated than in the previous 
illustration. Here reports are made by departments, as well as 
by totals. This statement combines comparisons with the 
actual figures for the month. 



292 CHAIN STORES 

Comparative Statements. — In many chain organizations, 
comparative statements are compiled at specified periods, some- 
times weekly as shown previously, and also monthly and yearly. 
These statements may show sales, profits, expenses or other items 
of interest regarding the stores and their relative standing from 
different merchandising aspects. Figm*e 49 for example, shows a 
form for comparing the net book profit from retail operations by 
months. Space, as will be noted, is left for reducing all figures 
to percentages, the form which makes it easiest for the execu- 
tives to grasp comparisons. 

Figure 50 shows another form for making annual comparison 
of sales, inventory, and turnover, of the various stores. 

It is apparent that figures such as these are of great importance 
to executives. They enable them to put a finger at once on all 
weak spots. If one store falls off in sales while other stores 
maintain a steady average, this fact shows up at once in the per- 
centage column. The same is true of profits. Although the 
sales of two stores, in gross amounts, may come to the same figure, 
the net of profits of one may far outbalance the other and, again, 
these records should show clearly the reason for this deviation. 

The Annual Report. — Annual reports are similar to monthly 
reports. .They can well include more detail and, of course, are 
the final figures for the fiscal period, being compiled after an actual 
physical inventory of the warehouse stock fixtures and equip- 
ment, with depreciation and losses charged off. Practically the 
same form for the annual report can be used as is used for the 
monthly report. 

The necessary forms are : 

1. Balance sheet. 

2. Income account. 

3. Expense statement. 

The annual report comes to the executive as a final link in 
his system of executive control. It also furnishes the ordinary 
medium by which the results of the yearns operations are mad^ 
public to stockholders. 

Conclusions. — By the means and methods that have been 
described, the chief executive should be able to put into force an 
efficient and intelligent administration; for he has first set up the 



CENTRALIZING EXECUTIVE CONTROL 293 

proper methods, and the mechanics for doing the necessary 
routine; and he has then set up the system of reports which 
show him they are being carried out as he has prescribed. 

Thus warehousing and purchasing and the supervision of retail 
outlets are coordinated, and the chief executive, with a consider- 
able degree of accurate knowledge, can exert his control and 
directing force on all parts of his organization effectively. 



1 

I 



CHAPTER XIX 
FINANCING AND GROWTH 

Outline 

Methods of financing. 

1. New stores financed out of profits from old stores. 

2. New stores financed by borrowing money. 

3. Absorption of chains by re-organization. 
Principles of growth. 

1. Steady growth in stores regardless of financial or business conditions. 

2. Steady increase in gross sales. 

(a) In organization. 

(b) In individual stores. 

3. Constant widening of chain store field. 

(a) In articles sold. 
(h) In services rendered. 
Net profits. 

1. Do not increase proportionately with gross sales. 

(a) Large turnover allows smaller margin of profit. 
2 Dividends more stable than in other classes of industrial stocks. 
3. Bonus system allowing adjustment of wages to sales. 
Capitalization. 
1. Ordinary form. 

(a) Issue of 7 per cent, preferred stock. 
(h) Issue of no-par value common stock. 

(c) Very seldom a bond issue. 

1. Provision for retiring with sinking fund. 
Normal growth of chain organization. 

1. Single store. 

2. Slow growth store by store. 

(a) Gradual evolvement of organization. 
(h) Formation of operating routine. 

3. More rapid growth. 

(a) Caused by 

1. Increased economics. 

(a) In purchasing. ^ 

(h) Merchandising. 

2. Increased profits. 

(a) More stores. 

(b) Better operated stores. 

3. Cumulative effect of territorial expansion. 

294 



CHAIN STORE FINANCING AND GROWTH 295 

4. Combination and stock increase. 
Distribution of stock. 

1 Old policy of keeping control in small number of stockholders. 

2. New policy of selling stock to customers. 
Methods of selling stock. 

1. Through underwriting house. 

(a) Necessitates size and distribution on part of chain. 

2. Through local broker or direct sales or both. 
Financial advertising. 

1. Should show present prosperity. 

(a) Net sales. 

(6) Safety. 

(c) Earnings and dividends. 

2. Statement of future prospects. 

(a) Reasons for wisdom of purchase. 



CHAPTER XIX 
CHAIN STORE FINANCING AND GROWTH 

One of the remarkable aspects of chain store development is 
the smoothness with which all financial difficulties have been 
surmounted. The reason is not far to seek. Most chain systems 
have done their own financing out of profits. It has rarely been 
necessary to go to Wall Street for funds. 

There are actually three ways in which a chain can finance 
its natural expansion: 

1. Finance new stores out of own profits. 

2. Finance by borrowing money. 

3. Absorption of other chains by reorganization and exchange of stock, 
or some other means not requiring new capital. 

A chain of retail stores is unlike a manufacturing business, 
in that the chain rarely has an inventory over its actual and 
immediate needs. Thus, its expansion in times of depression is 
in some cases as rapid, and even more rapid, than it is in times of 
great business activity. Since the chains deal in staple articles, 
much more so than the department stores and the mail order 
houses, their earnings do not show such fiuctuations. They have 
financial stability in that they can be counted on to earn a profit 
regardless of general business conditions throughout the country. 

The above statements are subject to some qualification. In 
1920, for example, one of the large dry goods chains carried so 
large an inventory as to wipe out its entire profits on $52,800,000 
of business, showing a net loss of $300,000. Its policy of expan- 
sion was curtailed, and it was able to regain its position in 1921. 

In brief, although it is inadvisable to over-expand in the face of 
a period of depression, still the chain stores, as a rule, are better 
equipped to weather such storms than are most businesses. 

In passing, it is noteworthy that times of depression are op- 
portune ones for obtaining lease holds. 

The question of finance is inextricably connected with the 

296 



CHAIN STORE FINANCING AND GROWTH 297 

progress of the various chains. To understand the problems 
of financing it is necessary to review the progress made by the 
chains during the last few years and the financial principles 
along which that progress has been conducted. The larger 
chains only are considered for the sake of convenience, and also 
because they are better known to the public. 

The Principles of Chain Store Growth.— There are certain 
phenomena observable about the growth of chain stores: 

1. Growth has been steady in spite of financial or business 
conditions. 

2. Gross sales have increased in volume in spite of prosperity 
or depression. 

3. There has been a constant widening of the articles and 
services marketed through chains of retail stores. 

4. Although methods of organization have been different, 
those chains only have succeeded which have remained true to 
the fundamental principles of chain store operation, as outlined 
previously in this book. 

The chain store organizations and the two large mail order 
houses are the only retail agencies which have attained great 
size and importance in the financial world. The mail order 
houses depend mainly on rural buying; the chain stores on urban. 

No one has been able to estimate, even with approximate 
exactness, the number of chains in the United States or the 
number of stores operated by these chains. Only in a few lines 
has there been any exact census made, such as the drug chains. 
In the grocery field one concern is spending many thousand 
dollars in making a census of the grocery field. And, as the 
number of chains is increasing rapidly every year, the attempt 
to enumerate them is hardly worth while, lacking definite figures. 
It suffices to say that the chain store in the last seven years has 
made enormous strides, not only in the number of new chains, but 
more remarkably in the increased volume of sales in the old 
chains. As an example, let us consider the larger chains in the 
United States and compare their sales over the last seven years: 

In each case the gross sales have far more than doubled. In 
the case of the Penney chain they have increased tenfold. The 
Kroger Grocery & Baking Company has increased its sales 
fourfold. 



298 



CHAIN STORES 



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These ten chains, measured by 
the volume of their sales, are 
the largest in the United States. 
The first four in the list operate 
more than one thousand stores 
each. Four of the ten are grocery 
chains, three five and ten cent store 
chains, and two dry goods chains 

What is happening in the case 
of the large chains whose sales 
reports are shown here is hap- 
pening in the case of thousands 
of small chains whose member 
stores are yet too few to mount up 
to large proportions of gross sales 

Earnings and Dividends. — With 
few exceptions, chain stores have 
been able to earn dividends, not 
only upon their preferred stock 
but also upon the common. The 
ordinary form of capitalization 
seems to be an issue of 7 per 
cent, preferred stock and a certain 
number of shares of common, no 
par value. Some chains have sold 
their stock at $10 a share to secure 
wider distribution among the 
public. 

Few chains have any bonded 
indebtedness and net profits can 
be applied almost entirely to meet- 
ing demands of stockholders, 
although it must be remembered 
that a chain company needs a 
certain amount of capital for new 
enterprises during the year and 
this capital is taken out of earn- 
ings rather than borrowed, and 
the amount added to the funded 
debt. 



>t 



CHAIN STORE FINANCING AND GROWTH 



299 



The following tabulation shows a comparison of net profits 
earned on the common stock of the two large mail order com- 
panies and certain of the chain store companies. The comparison 
is taken for 1918, 1919, and 1920, that is, dming the period of 
rising prices and falling prices. 

Earnings on Common Stock (Last Three Figures Omitted) 



1920 



Net 

for 

com. 



Net 

per 

share 



1919 



1918 



Net 

for 

com. 



Net 

per 

share 



Net 

for 

com. 



Net 

per 

share 



Sears-Roebuck 

Montgomery Ward 
F. W. Woolworth.. 

S. S. Kresge 

S. H. Kress 

McCrory Stores. . . 

J. C. Penney 

Jones Bros. Tea. . . 



m,i87 

t9,468 

8,918 

2,614 

601 

512 

t560 

135 



$13.07 



13.87 

26.14 

5.01 

10.24 



1.35 



$18,331 
3,652 
8,554 
2,140 
1,698 

335 
1,805 

215 



$26, 

10, 

17, 

21, 

14, 

6 

114 

2. 



$12,145 
3,863 

• 4,982 
1,561 

774 
224* 
696 
101 



$17.63 
12.97 

9.96 
15.61 

6.45 

4.48 
44.00 

1.0.1 



tDeficit. 



Profits on common for the Sears-Roebuck Company were 
practically cut in two in 1920, while Montgomery Ward showed 
an actual deficit. Among the five- and ten-cent stores, Kresge and 
McCrory showed big increases in net each year. Woolworth, 
because of its adherence to a policy of selling at five and ten cents 
showed a slight decrease in 1920, but the fall was in no way 
proportionate to that of the mail order houses. In addition, 
the company opened thirty new stores during the year. Earnings 
on the common stock of the Kress Company showed a sharp 
falling off but still showed enough to cover the four per cent, 
common dividend requirements. 

Figure 51 shows yearly fluctuation in market value of the 
common stock of the Kresge Company from 1912. Note the 
great stability during the business depression of 1920 and 1921. 

Chain store earnings and dividends show the following trends : 

1. Net profits do not increase proportionately with increase 
in total sales. This is natural since a larger turnover of goods 



300 



CHAIN STORES 



allows the chain to operate on smaller margin of profit. In 
other words, the more sales are made, the less money it is neces- 
sary to make on each purchase. 

2. Dividends paid on chain store stocks do not show that 
general tendency to fluctuate in times of prosperity and depres- 
sion which is evidenced by other industrial stocks. That is, 
the business of retailing on a large scale is more generally 
profitable than a manufacturing business. 

3. The ordinary form of capitalization is an issue of seven 



10 










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1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 

Maximum $4.475.000 $4,100,000 $5.250,000 $17,000,000 $16,750,000 $13,125,000 $IO,500.000$17.000.000$15,500.000 
Minimum 2.250.000 2.900.000 4.050,000 4.950.000 10,000.000 6,000.000 6.950,000 10,612.500 12.000.000 
Theoretical 4.300.000 6.100.000 8.500.000 9.700.000 16.900.000 14,300.000 13.000.000 17.800.000 21.800.000 $30,000,000 (Est) 

Fig. 51. — Growth in value of common stock of S. S. Kresge Company. (Merrill, 

Lynch & Co.) 



per cent, preferred stock followed by an issue of no par value 
common stock. Few chains have any bond issues outstanding, 
and if there are bonds, the general policy is to establish a sinking 
fund for their redemption as soon as possible. 

4. The bonus system of recompensing employees allows a 
very rapid reduction in labor expenditures whenever sales fall 
off for any reason whatsoever. In other lines of business this 
cannot be accomplished either so rapidly, or so easily. ^ 

The Kresge Company. — To illustrate better this question of 
chain store financing the S. S. Kresge Co. has been taken as an 
example. The company started in business in 1897 with one 
store. In 1921 it had 198 stores, as far west as Lincoln, Neb- 



>! 



V 



di 



CHAIN STORE FINANCING AND GROWTH 



301 



raska, and as far south as Norfolk, Virginia. Sales, which were 
only $5,116,099 in 1909 increased to $55,859,011 in 1921. The 
margin of net profit has kept between 5.94 per cent, and 8.23 
per cent. The company has made a phenomenal showing in 
net profits per store. In nine years it increased more than 
147 per cent., from $7872 in 1912 to $19,463 in 1920, see Fig. 52. 
Average sales have advanced 123 per cent, or from $121,476 in 
1912 to $271,139 in 1920. 

The company has followed a policy of financing its expansion 
almost entirely out of earnings. During the development of the 
Kresge chain, as with all chain stores following a policy of starting 
new stores, the old stores have to carry the burden. Thus, the 




JFig. 52. — Gross sales, profits, and earnings on common stock of S. S. Kresge Company. 

(Financial World.) 



reported profits on growing chains rarely show exactly how great 
an earning capacity the chain is capable of. 

The company had one store in 1897, 42 in 1909, 84 in 1912, 157 
in 1916, and 189 in 1920. In 1921, this number was raised to 198. 
More than 80 per cent, of the capital stock has come from rein- 
vestment of surplus earnings. In 1916, when the company was 
reincorporated, the common stock was doubled and par value 
changed from $100 to $10. In 1917, the stock had so increased 
in value that part was changed back from $10 to $100 again. 
In June, 1920, common stock was increased to $20,000,000 
and a note issue of $3,000,000 sold. It is interesting to observe 
that profits per share of common have not decreased because of 
increasing the amount of common stock outstanding. They 
have, on the contrary, kept up at a steady rate of increase 
(with the exception of 1921). 

This account of the financial growth of the Kresge company 
has been included as a typical example of the method in which 



302 CHAIN STORES 

chain stores grow financially. The process seems to work out as 
follows : 

1. A single store. 

2. Idea of chain of stores. Slow growth over a period of years 
and gradual development of an organization and a system on 
which to operate. 

3. Increased economies in purchasing, merchandising, etc., and 
increased profits (with the exception of 1921) allow more stores 
to be opened and territorial extension of operations. At this 
stage the chain may absorb other chains. 

4. Increased capitalization of common stock to keep pace with 
development. Perhaps increased preferred stock issue to provide 
extra funds for further expansion. 

Kingman Brewster, an authority on the legal aspects of chain 
store organization, makes the following comment : 

'^One of the most difficult problems in chain-store or industrial 
financing is the financing of corporations whose assets are under half or 
three-quarters of a million dollars. Whoever solves the problem of 
financing the small business will make a very decided contribution to 
corporation finance. For the reason of necessity the chains in the early 
stages have financed their expansion out of earnings. However, I 
once heard F. W. Woolworth state that such a policy was inconsistent 
with a desire to obtain a nation-wide distribution within the life time of a 
single man, and that in his own case he had found it necessary to pro- 
vide for stock issues (originally $50,000,000 common, $13,000,000 
preferred) for the purpose of making his institution a national one. 

'^ J. C. Penney has, I think, used only about $3,000,000 preferred 
stock, the rest of the financing being done out of earnings. How- 
ever, his organization, local and administrative, permits of an expan- 
sion by what amounts to additional partnerships and is very unusual 
in chain store operations. Furthermore, it is apparent that the method 
of financing is very frequently dependent upon the form of corporate 
organization, and the problem has been to find a method of transition 
from the business doing five or ten million dollars to a corporate form 
of organization which would permit of financing a business to do twenty- 
five miUions or more. The obtaining of this change without disrupting 
the administrative organization is the problem upon which all growing 
chain organizations are working." 

Chain Expansion from the Financial Standpoint. — The first 
method of expansion, as previously mentioned in the first part of 



CHAIN STORE FINANCING AND GROWTH 303 

this chapter, is to provide the necessary funds from current 
earnings of stores ah'eady in operation. Such a pohcy is entirely 
in hne with the inherent conservative idea pursued by chain 
store organizations in general. By financing a new store out of 
accumulated cash surplus, there is no heavy overhead charge 
under which the new store must struggle. All the expenses inci- 
dent to starting the new branch are already arranged for, and 
paid before the store opens. 

This, of course, does not apply in cases where stores finance 
themselves. For example, where each store is operated as a 
separate corporation, it frequently borrows on its improved real 
estate and obligates itself to pay off the loan out of earnings. 
This may take a period of five to ten years, but it means of course 
that the earnings of the local business go into the capital assets. 

The method of financing out of earnings, though it is safe, is 
slow, and men wdth vision, anxious to succeed, and sure of the 
soundness of their principles and methods, wish to take short 
cuts. That is, they wish to borrow the capital from Wall Street 
or directly from the public. In other words, they wish to float 
stock, generally preferred, to the public, in order that they may 
the quicker get a large number of stores into actual operation. 
This may be accomplished by combining with another chain, not 
by purchase, but by affiliation, as was the case with the present 
components of the Woolworth chain. It may be necessary to buy 
out other chains, and such a sudden drain on the exchequer may 
make it necessary to seek financial help outside the company. 

In the Penney chain, each new store is financed on a partner- 
ship basis. In other chains there are special policies pursued in 
opening new stores, although in each case the central organiza- 
tion furnishes all the capital. It is impossible to lay down any 
rules for financing other than those which govern the money 
market in general. The great advantage of the chains has always 
been that they did not find it necessary to borrow money when 
money was high. Another point in their favor is that ordinarily 
there is no large inventory to finance in periods of declining prices. 
The best insurance for the future is the amount of cash in banks. 

Distribution of Stock. — Some chain organizations, in spite of 
their size, have always kept the control of the company in com- 
paratively few hands. For example, this policy has been tradi- 



304 CHAIN STORES 

tional with the Great Atlantic & Pacific Tea Co., and with the 
Singer Sewing Machine Co. Both these companies have pursued 
a poHcy of expansion without borrowing, and this explains the 
small distribution of the stock. 

Other companies, and the number of this latter class is growing 
more numerous, like to have the stock distributed as widely as 
possible among the public, and especially the public which 
purchases their goods. For this purpose the par value of the 
stock is often put at $10 so that distribution among small stock- 
holders may be even wider. The psychology of this, of course, 
is that owners of stock in a certain chain will purchase goods 
there rather than somewhere else. 

When a chain store wishes to sell stock, it has two alternatives : 

1. It may go to a responsible broker and pay him a certain amount for 
underwriting the stock. 

2. It may try to sell the stock directly to its customers. 

If a chain store stock issue is to be floated from Wall Street, 
the issue of stock must be large. The underwriters do not care 
to handle anything small. It would not pay them to set in 
motion the machinery for selling stock on a large scale, the 
newspaper campaigns in various cities, the syndicate members, 
etc. There are two necessities for floating a chain store stock 
issue from New York. 

1. The chain must be large. 

2. The chain must be national or at least sectional. 

A chain of stores is known only in the localities where it sells 
goods. A manufacturing plant is known far and wide over the 
country because of the wide distribution of its products. 

Figure 53 shows the method which Merrill, Lynch & Company 
used to put before the public the advantages of the S. S. Kresge 
stock. The graphic method has been employed to show the 
enormous growth in profits and sales compared with the compara- 
tively smaller growth in number of stores operated. 

If a chain, which is local and comparatively small, wishes to 
distribute its stock, it may call in a local broker or else attempt 
to float the stock itself. The stock, of course, must be floated 



CHAIN STORE FINANCING AND GROWTH 



305 



S. S. Kresge Company 

Detroit, Mich. 

Operating a chain of 199 stores selling merchandise 
at prices ranging from 5 cents to $1,00 



I.IOO 

1.000 

900 

800 

8 700 

S 600 

t 500 

(S 400 

300 

200 

100 



1909 1910 

Sales $6,508,752 

Profits 408.957 

before war taxes *^*' 



^^ 


1 1 ■! 1 












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- 


Yearly Percentage of Increase 

in Stores, Sales arid Profits 

S. S. Kresge Co,^ 

1909-1920 












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ProfitSi 
1082 $& 



Sales 
902^ 



Stores 
350% 



1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 

$10,325,487 $16;097,511 $26,396,544 $36,309,513 $51,245,311 
669.179 1,150.497 2»J72,348 2.950.999 3.677,506 
85 U5 157 170 189 



The above Chart shows the growth of the S. S. Kresge Company since 
1909. The sales for the first eleven months of the current year were reported 
at $47,171,803 against $43,421,735 for 1920. The repeal of the excess profits 
tax is expected to be of great benefit to this company. 

Stockholders of record as of December 16th, 1921, will receive on Decem- 
ber 31st, 1921, a cash dividend of 3% and a stock dividend of 54%. 

The 1921 edition of our Kresge pamphlet may be had on application. 
The information contained therein, based on official data and original 
research, may be considered authoritative and should be of interest to 
investors and business men. 

Send for Circular D-128 

Merrill, Lynch & Company 

Investment Securities 

120 Broadway New York 

Uptown Office, 11 East 43rd Street 

CHICAGO DETROIT MILWAUKEE 

105 So. La Salle St. Penobscot Building First Wisconsin Nat'l. Bank Bldg. 

DENVER LOS ANGELES 

206 U. S. Nat'l. Bank Bldg. I. N. Van Nuys Bldg. 

Members of the New York, Chicago, Detroit and Cleveland Stock Exchanges 

All statements herein are based on information which we regard as reliable, but 

we do not guarantee them. 



Fig. 53. — Advertisement of chain store securities. 



20 



30G CHAIN STORES 

mainly in the district where the stores are operated, because it is 
difficult to sell stock where the company is not known. 

It is of course a function of a broker not only to dispose of 
stock for the purpose of adding new capital to a chain organi- 
zation, but also to maintain a liquid market for the securities. 
In this respect a corporation which has a large number of 
stockholders is in a much more safe position than where the 
distribution of stock is localized. There is, as is pointed out in 
this chapter, the additional interest of the stockholder in the 
business with which he deals. 

If a chain decides to sell its own stock, and this is frequently 
the case, it can be handled either by a mail order campaign to 
customers of the chain or by combining this method with 
advertising. 

Financial Advertising. — Many small investors in chain organi- 
zations never would have gone to an investment house for their 
stock. The reason they invest in the chain securities is because 
they are personally acquainted with its activities and can see 
for themselves the business done. Therefore, a frequent and 
sound investment argument is that the dividends from savings 
invested in chain store stock will help to pay for purchases. It is 
the same argument which was so successful in selling the stock of 
American Telephone & Telegraph Company. 

There are certain things a chain should show in financial 
publicity matter: 

1. The prosperity of the chain at present. In this category 
come net sales for the year as compared with past years and the 
same for net earnings. Next there should be mention of dividend 
rate at present and in the past, and some statement of the security 
of the income and the investment. 

2. The future prospects of the chain and a concise statement 
of why this stock is being offered for sale. 

Figure 54 shows an advertisement appearing in the local 
newspapers in districts served by the Waldorf System, Incor- 
porated. An analysis of this advertisement discloses the follow^ 
ing facts : 



1. Why ciistoinors purchase Waklorf stock. 

2. The size of the chain and its vokinie of business. 



CHAIN STORES FINANCING AND GROWTH 



307 



Why I Want Waldorf Customers 
to Share in Our Profits 



There are hundreds of people eatmg daily 
at the Waldorf Lunches who, every three 
months, are paid back by the Waldorf the 
money they spent in the meantime for their 
lunches. They have found one of the most 
profitable methods of reducing the cost of 
living. 

They are the men and women who have put 
their savings in the common stock of the Wal- 
dorf System, Inc., and own enough shares so 
that the dividends they have received pay 
for their lunches the year around. 

I am taking this method of talking to our 
thousands of patrons, as a great many of 
them are not investors, or are not in touch 
with investment houses, and are therefore not 
likely to know what, an unusually safe and 
profitable investment the common stock of the 
Waldorf System, Inc., is. 

Many of our customers, for mstancc, do 
not know that the Waldorf System, Inc., is 
now one of the largest chains of lunch rooms 
in the country, spreading over seven States — 
that it is growing faster than any other chain — 
that there are now 89 restaurants in 28 dif- 
ferent cities — that every day about $30,000 is 
taken in in cash sales — that although less than 
two c«nts is 0iade on the average, meal of 30 
cents, the vast volume of 36,000,000 meals a 
year enabled the Company to pay substantial 
dividends to owners of Waldorf common stock 
last year 

Why do I want more of our customers to 
become owners of our common stock' For 
much the same reason that every employee in 
the service of the Waldorf System, Inc , 
through a profit-sharing plan, participates in 
the profits of this System, down to the fel- 
lows that scrub the floors. Nothing pays so 
well as taking employees and the public into 
partnership, so to speak For .one of the rea- 
sons you receive more prompt and courteous 
service in a Waldorf Lunch is because the man 
serving you feels the pride and responsibility of 
being something more than a salaried em- 
ployee- 

For mstance, you, as a Waldorf customer 
buy some of its common stock, and thereby 
become apart owner. You now feel more at 
home, eatmg in a restaurant in which you have 
an owner's interest. You take an interest in 
everything going on. If you notice some lapse 
in the courteous service or high standard of 
cleanliness of the Waldorf Lunches, you report 
it at once to the management. You will prob 
ably be giving us some idea of how a little im- 
provement might be made, as other customer- 
stockholders have Yoa become a messenger 



of good will. For, while, previously, you would 
fell a friend casually of the good things to eat 
at a Waldorf Lunch, you now, as an owner, 
naturally go out of your way to spread the 
good news of better food. Your interest 
brings Waldorf more and more business — be- 
cause it is bringing business to yourself You 
are not satisfied unless other customers are 
satisfied — and that spirit helps us in pleasing 
the 36,000,000 people we serve in a year. 

Before we thus publicly invited our cus- 
tomers to become part owners of Waldorf 
Lunche.t; through purchase of shares of the 
common stock, we wanted the most positive 
evidence to show the public how safe and 
profitable such an investment would be — 
proof that any man or woman could understand. 
We now have it. 

During the last year Dun's reported 8881 
business failures in the United States. Prac- 
tically everybody knows that many of the 
largest corporations in the country had to cut 
off their dividends during the business depres- 
sion, and that many of them closed down en- 
tirely. Yet, since April, 1919, the Waldorf 
System, Inc., has enjoyed such prosperity that it 
increased the number of its lunch rooms from 
59 to 89— a 50% increase 

The net earnings Tor 1919 were at the rate 
of $385,467 a year Although the increased costs 
of provisions reduced the Company's profits 
per meal during 1920, the new restaurants ac- 
quired and the large increase in the volume of 
business with careful. etTicient management, 
enabled the companv to show net earnings at 
the rate of $626,703 for 1920. 

In 1919 dividends on the common stock were 
at the rate of 10% per year, cash dividend. In 
the year just closed, 1920, there were a cash div- 
idend of 10% and two stock dividends of 5% 
each. Based on the present outlook, I can see 
no reason why future earnings should not equal 
or exceed past earnings. 

This company — nor any of its officers — has 
no common stock to sell. It may be purchased 
like an) other stock in the open market through 
any stock exchange member The market price 
is shown daily on the Boston Stock Exchange. 

If you have no broker connection, or if you 
are not familiar with investment matters, f 
shall be glad to advise you of the name of 
.some responsible investment house through 
which you can buy Waldorf Common Stock. 
I shall welcome you as a part owner of this 
business, no matter how few shares you can 
buy And you'll have the satisfaction of hav- 
ing your money invested in a business that has 
been proved safe. 



Xp ^^^^^^^^-^^^^^^^^5:^^^^ President 

WALDORF SYSTEM INCORPORATED 



169 High Street 
Boston, Mas*. 



Fig. 54. — Form of financial advertising used by Waldorf System, Inc. 



308 CHAIN STORES 

3. Tlio results of customers' owning stock and the value to the chain and 
the customer. 

4. T\u) safety of the investment. 

5. Net earnings. 

6. Dividends paid. 

Conclusions. — As the various chains grow in size, the problem 
of financing will grow more important than it has been in the past. 
Even now the capitalization of some of the large chains is tremen- 
dous. For example, the F. W. Woolworth Co. has $100,000,000 
of common stock authorized, of which $77,000,000 is outstand- 
ing, plus $12,000,000 of preferred stock. The United Retail 
Stores Corporation was capitalized with $10,000,000 eight per 
cent, preferred stock, 1,000,000 shares of Class A common stock, 
and 100,000 shares of founders stock. This means that some of 
these chains are able to compete in capital with some of the 
largest manufacturers, and this power behind the chains is 
ra[)idly making them a factor to be reckoned with. 

Outside financing should be a chain^s last resort. The average 
chain should be able to finance new stores out of earnings. In 
case of the purchase of other chains or a particularly large ex- 
pansion program, it may become necessary to seek help outside, 
and in this event the method will depend on the size and character 
of the chain. A national chain may be financed from Wall 
Street; a local chain nuist be financed locally and perhaps by the 
chain itself. 



CHAPTER XX 
INSURANCE 

By M. MacIntyre^ 

One has only to consider for a moment the subject of insurance 
as appHed to chain store systems to see its importance. Insur- 
ance means protection from HabiKty. It may mean solvency 
or the opposite. At a comparatively small overhead expense, the 
chain can guard itself against various losses which it may incur 
and over which it has no control. These losses fall into three 
general classifications : 

1. Damage to the premises or merchandise, the most frequent cause of 
which is fire. 

2. Liability on account of personal injuries to individuals on or by the 
property of the chain, through accident. 

3. Loss through the dishonesty of employees. 

The average chain may look at these problems in two ways: 
First, it may consider, if the risk is well distributed, that if 
one store is destroyed by fire, the rest of them will remain 
unharmed and the loss will be comparatively small, and can 
easily be borne. Second, it may be argued, if the locations are 
not distributed, the chances of a severe loss on a single occasion 
are many times increased. In general, the insurance policies of 
the various chains are combinations of these two points of view. 

The Insurance Broker. — Insurance is a matter of major 
importance, not to be left entirely to the insurance broker. It 
does not follow that what the broker has to offer in the way of 
insurance is the best to fit the individual case. The company, 
however, particularly if it has been established for some years, 
knows fairly well where the greatest risks lie. The best 
policy, therefore, is for it to determine what insurance it needs 
and then make the broker supply it. 

A company gains nothing by distributing its insurance among 

^ Manager of the Insurance Department of one of the largest chain store 
organizations in the country. 

309 



310 CHAIN STORES 

several brokers. It is certainly no cheaper, and it adds com- 
plicating factors. If the business is not given totally to one 
broker, in the event of loss there is complication or confusion in 
arranging for the adjustment, whereas, if one broker handles the^ 
entire insurance business of the chain, it will be found more 
satisfactory. 

Insurance should be awarded on purely business grounds. 
There is so much competition among rival brokers that the ques- 
tion of patronage is apt to come up. Personal friendships should 
not be allowed to influence the decision. 

The cheaper policy is not necessarily the better policy. In 
case of a loss, the small difference in premium payments will count 
not at all. An insurance company can be compared to a savings 
bank. It is not so much the more favorable rate of interest as 
the security which is desired. It is not wise, therefore, to take the 
policies of obscure companies, even though they may call for 
smaller premium payments. 

One more caution will not be out of place. Never allow your 
broker to get a lower rate by some subterfuge. Misrepresenta- 
tion voids the policy and you never hear about it until the loss 
occurs. 

Insurance Against Fire. — In general, it is unwise to take any 
part of the fire risk. Over-insurance is better than under- 
insurance. This statement applies most particularly to local 
chains whose stores are situated near each other. The statement 
may be modified in the case of the larger chains. For example, 
it may be advisable to assume the initial risk, say of a few thou- 
sand dollars, for any given store and to insure the excess over and 
above that amount. This will give a lower insurance cost 
and may prove cheaper in the end. It should not, however, be 
resorted to unless the locations are fairly well distributed. There 
are some chain stores having as many as ten stores in a given - 
conflagration area and risks of this sort are too dangerous for any 
but an insurance company to carry. 

At first thought, it would seem reasonable to suppose that i 
a large chain could carry its own insurance more cheaply than the 
same seciuity could be had of insurance companies. But, as 
insurance is l)ased on averages, a series of losses may occur which { 
would cripple the organization, and therefore even the largest 



d 



INSURANCE 311 

chains cannot expect to insure themselves entirely — that is, assume 
their own risks. The fire insurance company which did not have 
more locations than the largest chain store organization would be 
a small one and its losses would soon lead it into bankruptcy. 

Chains whose member stores number in the thousands are 
comparatively few. Chains in the hundreds are still excep- 
tions, so that for the great mass of chains, complete insurance 
against damage by fire is highly to be recommended. 

Real Estate Insurance. — As we saw in the chapter on ^'Locat- 
ing the Store, '^ chain store systems may have to enter the real 
estate business themselves in order to get the most desirable 
locations for their own stores, and by that we mean that it may 
sometimes become necessary to purchase or to take the lease of an 
entire building, or at least of more space than is actually needed, 
in which to conduct a link in the chain store system. This 
brings up questions of real estate insurance. Among the forms 
of real estate insurance commonly carried are fire insurance on 
buildings, rents, leasehold interest, and improvements. 

1. Building Insurance, — If a lease of an entire building, and 
almost invariably, if what is known as a ground lease is taken, the 
lessee (the chain store system) is required to keep the building 
insured for the benefit of the landlord. If, when making the 
lease, the fire clause does not provide that the repair or rebuilding 
of the premises shall be performed by the lessor (the landlord) 
insistence should be made upon providing that the building insur- 
ance should be in the names of both landlord and lessee as interest 
may appear. Building insurance frequently contains ''loss 
payable '^ clause in favor of a mortgagee. It is important to note 
that it is not necessary for the mortgagee interest to appear in all 
policies, but only in such number of them as may be required to 
make up the amount of the mortgagee's interest. In other 
words, to have a mortgagee clause or designation in some policies 
and not in others does not render the insurance non-concurrent. 

The question of amount of insurance is important. If the 
lessee is responsible for deficiency of insurance in case of loss, it is 
advisable to insure for full insurable value regardless of any 
co-insurance clause. One hundred per cent, co-insurance should 
never be used in building policies. Insurable value is not replace- 
ment value, but replacement value less depreciation. Recently 



312 CHAIN STORES 

it has become possible to carry insurance against loss in connec- 
tion with a fire due to depreciation, but prior to that time a loss 
due to depreciation had to be borne by the lessee or the landlord 
according to the terms of the lease. 

2. Rent Insurance. — There are several forms of rent insur- 
ance — rental value (occupied or vacant), rent (occupied only) 
and leasehold interest (rent paid in advance). It is sometimes 
difficult to know which form should be used. Generally speaking 
Rental Value form should be used in the following two cases: 

A. When an owner leases a building to a number of tenants 
whose leases contain provision for abatement of rent in case of 
untenantability due to fire and or termination of lease with or 
without refund of rent paid in advance. 

B. When the lessee of an entire building, under a fire clause 
providing for no abatement of rent, leases various portions to 
different tenants with provision in lease for abatement of rent 
in case of untenantability due to fire. 

The Rent (Occupied Only) form should be used where an owner 
leases to a single tenant under the conditions above described, or 
where a lessee of an entire building under fire clause providing for 
no abatement of rent, sublets the entire premises to a third party 
under terms providing for an abatement of rent. In many insur- 
ance jurisdictions there is a difference of 25 per cent, in the rate 
between the two forms in favor of the Occupied Only form, which 
should be taken advantage of whenever possible. 

Rent Paid in Advance. — Where a lessee is holding under a lease 
providing for an abatement of rent in case of untenantability due 
to fire, but not providing for refund of rent paid in advance, he 
should insure under the leasehold interest form. 

3. Leasehold Interest. — There are several forms of leasehold 
insurance, including rent paid in advance, anticipated profits and 
bonus. The first form differs from the others in that it refers to 
rents paid or to be paid. The other forms are designed to guard 
against the loss due to fire through the termination of the lessee's 
lease, of the benefits of moneys invested, or of profits which, 
during the term of the lease, would have accrued. The amount 
collectible under these forms is automatically reduced according 
to the unexpired term of the lease on any given date. 

4. Improvements. — Improvements are betterments made to 



i 



INSURANCE 313 

existing buildings, and a lessee may insure its interest in such 
improvements against damage to or the loss of them by fire in its 
own name. A landlord is not generally under the obligation to 
restore improvements made by a tenant, although an owner 
usually does so unless the improvements are of an unusual 
character or expensive. It should be kept clearly in mind that, 
if a lessee erects a new building on vacant land, it does not con- 
stitute an improvement within the meaning of the improvement 
form of insurance. The same would have to be insured as 
a building in the name of the lessee as owner with a special clause 
providing that it is standing on leased ground if, by the terms of 
the lease of the ground, title to the property did not immediately 
pass to the landlord. If title passed, then the building must be 
insured as such in name of the ground landlord, and the lessee as 
interest may appear, vjtth the consent of the landlord. 

Fire Insurance Policies. — There are two types of general fire 
policies, first, floater policies, and, second, blanket policies. 
These are in contra-distinction to ordinary policies applying to a 
specific location. A blanket policy covers, let us say, any given 
number of locations in the chain. A floater policy, on the other 
hand, covers all present locations and any others which may be 
acquired of the same class. It is necessary, of course, to carry 
specific policies on warehouses or office buildings where the value 
of the unit is especially large. 

In the larger cities, and these are where the greatest number of 
chain stores are located, the 80 per cent, co-insurance clause 
is in current use. It is important to make a study of this clause. 
It does not mean that it is necessary for the chain store organiza- 
tion to carry any part of its risk. As an example of what the 
clause is, let us assume that the insurable value of the property 
is ten thousand dollars and that eight thousand dollars of insur- 
ance is carried. If a fire loss of anything up to eight thousand 
dollars is sustained, it may be collected from the insurance com- 
pany in full. On the other hand, if only seven thousand dollars 
worth of insurance were carried, then only seven-eighths of the 
actual loss could be recovered, and so on in the same proportions. 
In other words, you must insure 80 per cent, of the value of 
the property if you wish to collect the full amount of the partial 
loss. Otherwise, it is only possible to collect proportionately. 



314 CHAIN STORES 

Plate Glass Insurance. — Since window display forms such an 
important part in chain store merchandising, there are many 
plate glass windows to be considered in the insurance problem. 
Chain stores having several hundred stores may perhaps safely 
assume their risks on plate glass insurance. If you have been 
carrying insurance, and wish to see how it would work out in 
your own case, get figures for the last two years as to breakages, 
and get a glass concern to give you a figure as to the cost of mak- 
ing replacements. Allow a 25 per cent, salvage for glass recovery. 
Compare the cost of replacement minus salvage with the pre- 
miums you paid including the reinstatement premiums (wherever 
a breakage occurs, it is necessary to get a new policy, and to pay 
a so-called reinstatement premium). 

If the cost in two years is less than the premiums which it 
would have been necessary to pay, then it may be well to experi- 
ment for a year in assuming your own risk, setting up on the books 
a fund to take care of breakages, this fund to be equal to the 
premiums you would have paid. 

The reason the company can assume such a risk as this is that, 
even though a heavy series of losses should occur, they are 
limited in any single case. 

Public and Employers' Liability Insurance. — Insurance against 
accident on the premises costs little and the possibilities of 
incurring damage suits are great. It is likewise necessary to 
insure employees under the compensation law. These are 
cases of protection against events which are not very likely to 
happen, but, in the event of their occurrence, the claim for dam- 
ages may be large. 

In choosing the company in which to take out this class of 
insurance, the best is none too good. Liability cases give rise 
to claims which may not be settled for years, and you want to be 
sure the insurance company will be doing business at that time. 
If the insurance company fails, it is well to remember that the 
liability of the chain organization is not in any way lessened 
thereby. 

Chains in certain lines may find it necessary to carry special 
liability insurance. For example, chain drug stores should carry 
druggists^ liability insurance against wrong filling of prescrip- 
tions and also against incorrect delivery. 



ai 



INSURANCE 315 

Since most chain stores use automobiles for transportation of 
goods between stores and warehouses, if not also for retail 
delivery, automobile liability insurance should be carried. It is 
well to have this in the same company which covers the public 
liability in stores, since there are frequently border-line cases. 
If there are two insurance companies involved, it would permit a 
dispute, whereas if there is only one company, there can be no 
excuse for its not shouldering the entire responsibility. 

Every accident of any kind should be reported to the insurance 
company, even though there are no personal injuries. The latter 
may develop, and failure to give notice may prejudice the 
insurance. 

Other Forms of Insurance. — Burglary and hold-up insurance 
is almost a necessity, especially since it is known that the member 
stores operating on a cash and carry basis take in a great deal of 
money. 

Protection against messenger and paymaster robberies should 
also be carried. This may be included on the same policy with 
the burglary and hold-up insurance. 

Life insurance on executives drawn in favor of the corporation 
or firm may be desirable as a means of offsetting temporary loss 
of business or the lessened ability of the new incumbent. This 
is a matter for individual decision. 

Group insurance may, or may not, be an important vStabilizing 
factor in labor turnover. Where the wages in a trade are prac- 
tically fixed, as in cases where employees are unionized, the addi- 
tional attraction of group insurance may prove alluring. But 
where there is no fixed rate, the employees seem to prefer an 
increase in wages rather than to have insurance protection, 
regardless of how small this increase may be. That is, the 
employee of the retail store class prefers the small immediate 
advantage to the greater advantages which would accrue to his 
dependents after his death. 

Employees will not stick to one chain merely on account of 
group insurance, if they can go to another chain which also offers 
them group insurance. This defect, of course, may be obviated 
to some extent by making the insurance inoperative during the 
first six months. 

Group insurance is a question which affects the liability of the 



316 . CHAIN STORES 

company in no way. Its purpose is rather towards making the 
employee more satisfied and contented, and in reducing the labor 
turnover. Each chain must decide whether it answers this pur- 
pose from the circumstances and factors which bear on its own 
case. 

Bonding Employees. — Chain store employees should, without 
exception, be bonded. This does not mean that there is a large 
percentage of dishonesty among chain store employees, but there l| 
undoubtedly is great opportunity for dishonesty in various ways, ' ' 
and this should be discouraged by the company in every possible 
way. 

The purpose of bonding employees is not so much on account 
of the expectation of recovering losses, as for the elimination by 
the bonding company of dishonest employees. To recover 
losses on a bonded employee it is necessary to prove dishonesty. 
Most thefts from chain stores are made in small quantities and 
detection of any individual delinquency is difficult. Further- 
more, all losses not proved against dishonest employees must be 
borne by the employer. 

The bonding company's real function is to serve as an investi- 
gator of the character of the chain's employees. No bonding 
proposition which does not contemplate a thorough and immedi- 
ate investigation of the prospective employee's record is any 
good. The bonding business is founded on the average honesty 
of the human being, and its success is determined by narrowing 
the risk, in so far as possible, through elimination of dishonest 
individuals. 

The way to prevent losses is not to have employees who steal. 
Bonding is one way of selecting honest individuals, as well as 
a means of protection against defalcation. 

Conclusions. — A chain store system makes use of every econ- 
omy possible in its effort to make the purchasing and merchandis- 
ing mechanism 100 per cent, efficient. Therefore, it is important 
to make sure that a lack of protection where protection is 
necessary and possible should not nullify the merchandising 
economies. That is, insurance should be adequate. 

The problem, of course, differs for the chain with three stores 
and the chain with three hundred, not in principle, but in the 
variety of risks to be assumed. The larger the company and 



INSURANCE 317 

the larger the number of branch stores operated, the larger the 
opportunity for self-insurance. In the largest chains, there 
should be a special department to take care of insurance prob- 
lems, to decide on the necessity of protection and the amount of 
insurance which should be carried, premium necessary to pay. 
But do not neglect your insurance problems. It is worth while 
to pay for the protection insurance gives. 



CHAPTER XXI 
THE MANUFACTURER'S CHAIN 

It is necessary at once to sound a caution against confusing 
chains which manufacture with the manufacturer's chain. The 
former is primarily a retaiHng organization and in no case Hmits 
its sales to the articles it manufactures. It sells what the public 
wants and if it can make the public want goods of its own manu- 
facture so much the better. The true manufacturer's chain, on 
the other hand, is limited to a manufacturer who aims to dispose 
of a part or all of his output through his own retail outlets. 

The immediate causes of a manufacturer starting a chain of 
retail stores may be many, but the majority of them come down, 
in the end, to dissatisfaction with the methods of distribution. 
Many companies find the jobber and the retailer extremely 
unsatisfactory. In times of depression, these outlets become 
choked, and the manufacturer is compelled impotently to wait 
until the road is clear. In times of prosperity, jobbers and 
dealers send in order after order, but when the turn comes they 
are just as quick with their cancellations. 

Manufacturers who start retail stores, therefore, do so usually 
with the clear purpose of distributing their products more di- 
rectly. That they have had no retailing experience is too 
often lost sight of at the beginning. Manufacturing and retail- 
ing functions are almost diametrically opposed. It takes a differ- 
ent type of mind in the executive and an entirely different type of 
organization for these two functions. In addition, there are 
the ever-present questions of whether manufacturing or retailing 
is more important to the company, and the question of which one 
should prevail. The fact that there are many successful retail 
chains operated by manufacturers does not alter the fact that the 
manufacturer has to face an exceedingly difficult problem. 

Advantages Possessed by the Manufacturers' Chain. — A 
manufacturer should take careful stock of what is to be gained 
before definitely deciding to enter the retail field. In other 

318 



THE MANUFACTURER'S CHAIN 319 

words, he must budget his prospects. On one side of the 
page he must put the advantages he expects to gain and on the 
other the obstacles which he must be prepared to surmount. 
He must carefully weigh the results. 

The following discussion is based on an excellent article on the 
subject which appeared recently. In the first place, what can 
the manufacturer hope to gain by starting a chain of retail stores? 

1. If they are properly managed, he should receive almost 100 per cent, 
cooperation in backing up his consumer advertising. This brings out 
immediately one of the causes of dissension between the manufacturer and 
the dealer. The manufacturer wants his product given first preference 
by the jobber and dealer and the same feeling is shared by his rival manu- 
facturers. This may be obviated by granting exclusive agencies, but 
whether exclusive agencies are the best form of retail merchandising for 
manufacturers is open to question. 

2. Retail prices can sometimes be lowered. This is a very real advantage 
in any retailing proposition. The chain, however, immediately experi- 
ences the condition of affairs encountered by the Regal Shoe Co. where 
the company was selHng shoes in its own stores at less than the Regal 
agency around the corner. What is the answer? Price is such an import- 
ant element in chain store competition that the manufacturer might profit 
by it. Indeed, the ability to sell at a lower price would almost be necessary 
to make the manufacturers' chain successful in a short time. 

3. Any service work demanded by the retailer can be rendered more 
satisfactorily. Naturally the management can install the most modern 
merchandising policies and see that they are uniformly carried out in the 
stores. In other words, the manufacturer will initiate his own service 
rather than wait for a dealer who may not see the need for it or, if he does, 
may not have sufficient interest to bring it to the attention of the man- 
agement. 

4. Substitution can be more surely avoided. The importance of this 
point will depend largely upon the company's present relations with its 
retailers. 

5. The consumer and his tastes can be studied at first hand. This is 
a real advantage and one which many manufacturers have taken advantage 
of. In this case the retail stores are not created primarily for profit and the 
stores are usually few in number to be used as a laboratory. 

6. The product itself can frequently be improved as a result of direct 
contact with the user. 

7. It is possible to develop new sales arguments. 

8. The results obtained through the retail stores can be applied in deal- 
ing with other retailers outside the organization. 

9. Advertising and display material can be made uniform and used to 
much greater advantage than if merely distributed to agencies or retailers. 



320 CHAIN STORES 

10. Road salesmen can be trained in retail stores. 

11. By the publicity attained, new dealers may be secured to handle the 
product. 

So much for the tabulation of advantages. The following 
are some practical advantages, as found by representative manu- 
facturers : 

One of the main reasons for manufacturers opening retail 
stores was the larger volume of sales. In many cases it was a 
last resource. In some cases, stores in particular communities 
have been opened only because of the peculiar character of the 
competition there. They might be called strategy stores. Some 
stores have been started when a market had to be created for a 
new product; sometimes when there were no dealers in the field, 
such as was the case with automobiles. Sometimes stores were 
started when goods were so novel that dealers hesitated to take 
them up. This was true of Dennison's retail stores in the early 
days. Dealers would not carry a large enough stock. The 
present Dennison stores are more like warehouses than stores. 

As far as reducing the retail price is concerned, one company 
was found which had succeeded in selling its goods at from 15 
per cent, to 20 per cent. less. 

There are technical products which demand service. The 
Waterman Fountain Pen Co. has several retail stores. Yawman 
& Erbe and the Library Bureau are further examples. 

Manufacturers' stores may serve as experimental laboratories 
and training schools for salesmen. The manufacturer can 
study the buying public through his retail stores. S. E. Summer- 
field, president of the Gotham Hosiery Co., says that through 
his New York stores he can get information regarding public 
taste he could not secure in five or six months through other 
dealers. 

Chain Shirt Shops were created to try out the selling of Olus 
combination shirtwaist and drawers for men, which had not 
worked well in the regular trade. They did not work here either, 
but the retail stores are excellent outlets for other men's wear. 
The Dennison stores, according to Advertising Manager Schuyle/ 
Van Ness, are used as laboratories to get first hand criticism of 
goods from home consumers. Defects can be discovered 
immediately. 



THE MANUFACTURERS CHAIN 321 

Some manufacturers have found that one of their stores con- 
ducted profitably is of more value in convincing retailers of the 
value of the product than anything else. The Gotham stores 
are frequently visited by buyers. The retail store often gives 
the product backing in the eyes of the public. 

The Redfern Corset Company^s stores are maintained almost 
entirely to train dealers' department heads and saleswomen in 
the art of corset fitting, alteration, merchandising, and stock- 
keeping. 

When Dennison moved the location of his Philadelphia store, 
a nearby retailer threw out his entire department, and a year 
later put it back with double the size because of increased calls 
for Dennison goods. 

These experiments have been cited at length because they illus- 
trate the variety of uses to which the manufacturer may put his 
retail outlets. The manufacturer who is thinking of starting a 
chain of retail stores should carefully take all these points into 
consideration. 

Disadvantages. — The disadvantages which the manufacturer 
must overcome when starting retail stores are so serious, that it 
becomes a desperate remedy for a situation which can be solved 
in no other way. The disadvantages may be listed as follows: 

1. It has taken years in nearly every case to get stores on a paying basis. 
Many times they have been operated at actual financial loss. 

2. There is always the danger of trying to compete with the company's 
own retailers unless, like Browning, King & Co., the retail stores absorb 
the company's entire production. 

3. Frequently the retailers object strongly to a retail store operated by 
the company and while the stores of the company may be successful, sales 
may fall off sharply in agencies. 

4. Since the manufacturer must maintain the highest standards in his 
stores, he has a high overhead. 

5. The chain must obtain the services of an experienced retail manager. 
This is essential. The manufacturer himself is not competent to look 
after the retailing end of the business. The whole question of the personnel 
becomes more difficult owing to the lack of personal relations between the 
management and the retail end of the business. 

6. The manufacturer is limited to his own line of goods. In this way he 
may be at a disadvantage in comparison with independent dealers or chains. 
It is also claimed that the manufacturer's chain does not respond quickly 
to change in public taste because the initiative generally comes from-ihe 
manufacturing instead of the retail end. 

21 



322 CHAIN STORES 

The manufacturer can now see just what points he must con- 
sider before starting a retaihng venture. In nearly every way he 
is at a disadvantage when compared with the retail chain selling 
the products of others as well as its own, but the fact that there 
are successful chains run by manufacturers is sufficient evidence 
that the enterprise is by no means hopeless. The manufacturer 
must weigh the following points: 

1. What is my purpose in entering the retail field? 

2. Is there no cheaper and more easy way out of the difficulty experienced 
in distributing or selling the product? 

Organization. — When the manufacturing end is in control, 
chain organization may differ in various ways. The essential 
point is the degree of control exercised by the directors of the 
manufacturing company and, in some measure, the degree with 
which they exercise the power actually in their hands. 

Following are some of the ways in which the retail outlets and 
the manufacturing enterprise can be and are coordinated : 

1. Where the whole output of the factory is sold through retail 
outlets of the company. This is the simplest form of manu- 
facturers^ chain because it eliminates the intricate dealer and 
agency question. In this class come such chains as Browning, 
King & Co. who started in 1868 to retail their own products 
and now own seventeen stores. The Library Bureau for forty 
years has followed the policy of selling all its goods through its 
own stores. The Singer Sewing Machine Co., with 6,000 stores 
in all parts of the world, and 1,800 in this country alone, is one 
of the most imposing examples of a successful manufacturer's 
chain. 

2. Chains which sell through their own retail stores and also 
through independent retailers or agencies. Most manufacturers' 
chains fall under this classification. The W. L. Douglas Shoe 
Co., the Regal Shoe Co., A. G. Spalding & Bros., etc., are examples 
of this type. Naturally such a system involves much more 
accounting than the first type. It is in cases like this that goods 
are l)illed to member stores at wholesale, rather than retail priced, 
to avoid a double system of accounting at headquarters. 

,3. There is the further type of manufacturers' chain, small in 
size, which is not designed primarily for retail outlets. The 



THE MANUFACTURER'S CHAIN 323 

Gotham Hosiery Co. is an example of this type. Sales for 1921 
through its three retail stores in New York amounted to over a 
million and a half dollars. In the tiny shop on West Thirty- 
fourth Street there are eighteen sales girls placed as close to each 
other as they can stand. Nothing is sold but Gotham Hosiery 
and, as there is little looking around or pricing, the turnover is 
exceedingly rapid. Warner Brothers Co., makers of Redfern 
corsets, have stores in New York City, Chicago, and San Fran- 
cisco. The Sherwin Williams Co., paint manufacturers, have 
retail stores in many cities. 

Many manufacturing companies are run under the committee 
plan where the heads of the organization, in conference, map out 
procedure and development. Naturally they attempted to 
extend this plan to the retail stores, but found it did not work. 
Chain stores need centralized control, chiefly because they them- 
I selves are so scattered that there must be some well-defined bond 
t holding them to the central organization. A committee is too 
' impersonal. It is too cumbersome. It takes too long to function, 
i It cannot keep pace with local conditions. Every chain should 
I have some sort of executive in charge who knows his business and 
j who is in direct control of an able staff of subordinates. 
I Some manufacturers' chains have solved the problem of 
organization by forming a separate holding and operating com- 
pany to manage their retail outlets. Whatever form of control 
j is chosen, it should always be borne in mind that the selling and 
j the manufacturing must be divorced and, that if either is to 
! furnish initiative for change in policy, this should preferably come 
i from the retail end as being closer in touch with public demand. 
j The Product. — R. A. Bruce says that, for chain store purposes, 
products must be divided into two classes: 

1. Convenience goods which can be sold without disturbing existing 
distribution to any great extent. 

2. Articles demanding personal service which will interfere with existing 
trade relationships. 

In the first case it is perfectly possible for Page & Shaw to have 
a retail store of its own in the middle of a block and to have 
agencies in two drug stores, one at each end of the block. The 
reason is that candy is a convenience article and people generally 
buy it wherever they are. 



324 CHAIN STORES 

In the second case people will go out of their way to get a 
particular article. The manufacturers of shoes operating retail 
stores and also giving agencies are up against this problem. 

The product can be considered in a different light, however. If 
the manufacturer makes a product which is extremely limited in 
its use, such as a door-hinge, it is quite evident that a chain of 
retail stores would not be worthy of serious consideration. His 
logical outlet is the dealer and his logical appeal to the public 
through advertising. 

But in the case where the product itself is the entire output of 
an industry such as shoes, hats, shirts, clothing, etc., it is 
equally evident that the product is fitted for sale through a 
manufacturers' chain. That is, as far as the product itself is 
concerned, there is sufficient demand from the public to support 
a store dealing exclusively in this product. 

The Agency Problem. — To what extent can the manufacturer 
compete with himself? When the field is already supposedly 
occupied by retailers handling his products, is it possible for him 
to start his own stores in such a way as to keep the loyal coopera- 
tion and help of existing agencies? This is a problem the indivi- 
dual manufacturer must solve in his own way. It is difficult to 
see how a certain amount of friction can be avoided. A retailer 
will naturally resent the entrance of the company into his district 
with a retail store of its own. He feels that it is going to affect 
his business adversely. Whether it does or not depends largely 
upon the company and the assistance it gives the agency when 
compared with the assistance rendered its own stores. 

The Regal Co. for a long time maintained two separate policies 
in regard to its own stores and its agencies. Then it was dis- 
covered that customers had very often to pay more for their 
shoes at the agencies than at the company's stores. There was a 
very thorough investigation of the whole problem and it was 
found that the agencies were getting little or no cooperation. 
As a result the policy of the company was reversed. The agencies 
were, to a certain extent, taken into the company. Their own 
store managers were ordered to give the fullest assistance to 
the local agency. The district managers were told to give the 
problems of the agency the same attention they would give the 
problems of the store managers. An attempt was made to make 



THE MANUFACTURER'S CHAIN 325 

the agencies feel the company was working with them rather 
than in competition with them. The most important concession 
was a leveUng of price charges so that agencies obtained shoes at 
exactly the same price at which they were delivered to the com- 
pany's own stores. Furthermore, the company's stores were 
made warehouses from which agencies could draw in emergency 
for supplies of shoes, thus avoiding the necessity of waiting until 
the company's nearest warehouse could ship the goods, and 
perhaps saving many sales. A policy such as this is bound to 
work out to the benefit of both parties, since it is based upon 
team-work and cooperation rather than competition. 

The Personnel. — As in the case of the normal retailers' chain, 
the personnel is the weak link. The company must pay high to 
secure a good man. He should be given a share in the company 
if possible. It is difficult to get good men because, in the upper 
ranks, very few chain executives shift from one company to 
another. Their interest in profits keeps them attached to one 
concern. When a manufacturer starts a chain of stores, he is 
naturally prompted to look outside for his men. Whereas a 
retail chain can start with one link and train up men, he must 
secure men trained elsewhere, especially since he has not the 
requisite retail knowledge to train them himself. 

When the company has secured a man whom it believes capable 
of taking full charge, he should be allowed to have considerable 
latitude. He knows, supposedly, a great deal more about the 
problems the manufacturer will have to encounter in his new 
undertaking than anyone in the company. If the company has 
chosen its man wrongly, it can dismiss him and choose another 
man, and this is far less harmful than hampering him at every 
step with commands and suggestions. One good plan would be 
to appropriate a certain amount of money and then tell the 
retail manager to go ahead on that basis, rendering strict account 
of expenditures at frequent intervals. 

What has been said in other chapters in regard to the personnel 

will apply equally well here. To all intents and purposes, the 

member store is run exactly as the member store of a retail chain. 

j There is a manager with a share in the profits and clerks who 

' probably receive some sort of a bonus for sales. 

The manufacturer may regard it as necessary to maintain one 



326 CHAIN STORES 

or more stores at a loss, because of competition or because it is 
desired to open up new territory, etc. In this case some arrange- 
ment should be made by which the manager of the local store 
which is not earning money should be recompensed proportion- 
ately to his effort. This is especially important as it would pay 
to have a good man located at this point. 

The Operation of Manufacturers' Chains. — It may be of value 
to present some of the aspects of chain store operation as applying 
specifically to the manufacturer's problem. These may be 
grouped under the following headings: 

1. Territory. 

2. Purchasing. 

3. Accounting control. 

4. Sales policies. 

5. Advertising. 

1. Territory, — Every manufacturers' chain is a potential 
national chain, although, in actual fact, the retail stores may be 
grouped within a small radius and the rest of the country covered 
by agencies. Yet by means of these agencies the company has 
paved the way for the installation of a retail store of its own 
whenever it considers conditions warrant. 

The best results are often secured through retailing the entire 
production through the manufacturer's own stores. The 
Singer Sewing Machine Company, for instance, the most con- 
spicuous example, has divided the United States into territories, 
which are in turn sub-divided into one hundred or more divisions. 
The company maintains outside salesmen as well, who turn all the 
business they secure into the store covering the territory in which 
the sale is made. 

The Regal Shoe Co. has six selling districts, determined by 
volume of sales rather than extent of territory. It is divided 
into the Southern, the Northern, the Pacific, the Middle West, 
and the two Metropolitan divisions of New York. 

This question of territory is much more important in the case 
of the manufacturers' chain because of the previously discussed 
agency question and the nature of the product. On the one 
hand it is necessary to secure the loyal cooperation of the agencies 
and on the other the efficient operation of the retail stores. 



THE MANUFACTURER'.'^ CHAIN 327 

2. Purchasing, — Purchasing, as such, does not exist for the 
retail branch of the manufacturers^ chain. All goods are invoiced 
to the retail stores at cost of manufacture by the company. 
Thus, one great source of chain economy is at one stroke removed. 
The purchasing function is a mere choice of lines to be stocked by 
local managers. As hitherto explained, this slows up the entire 
process of transferring the purchasing desires of the public to 
the source of supply. Consequently, a manufacturing chain is far 
more likely to be caught with large inventories by sudden shifts 
in buying habits and style or perhaps of periods of prosperity 
or depression. 

3. Accounting Control. — Accounting is just as necessary in 
the manufacturers^ chain field as in the retail chain field. It 
is, however, more difficult to obtain the same accurate results 
if agencies are used for partial distribution. But all manufac- 
turers with retail chain stores recognize the necessity of scientific 

I statistical control both for purposes of sales analysis and for 
< individual store efficiency. 

4. Sales Policies. — When a manufacturer sells through agen- 
cies, his desire is to sell the product. The dealer is important 

I only through the volume of sales of the company^s product. 

I When the manufacturer runs a retail store or chain of stores, the 

, individuality of the store takes on prime importance. What an 
agent does reflects on the agent more than on the company. 

! What one of the company^s own stores does reflects directly on 

i the company itself. Thus the sales policy must be modified to 

I take into consideration the retail links. 

! The great sales problem is the question of price. Must the 
company ^s own stores sell at the same price as the agencies? 

\ Suppose there is an overstock of goods. Should agencies and 
stores combine in sales effort to clear out these stocks? Unques- 
tionably it is very difficult for the manufacturers^ chain to reduce 
prices. Various expedients are tried. Merchandise is shifted 
from stores where it will not sell to stores where it will. More 
general still is the practice of giving a premium to the salesman 
on sales of slow-moving goods. 

Price in a manufacturer's chain is a local question far more 
than in the case of the retail chain. For example, competition 
in one city may be especially strong, due to local manufacturing 



328 CHAIN STORES 

and local retailing. The problem here is quite different from 
that of another city where competition may be weak and sales 
easy to make. A price-cut is generally a last resort, after all 
other methods have failed. However, it may be essential in 
case of an over-supply of seasonal goods. 

A manufacturer does not sell a number of brands; he sells one 
brand and that his own. All sales effort, therefore, is concen- 
trated on establishing the preeminence of this particular brand 
over others in the field. In a retail chain, if one manufacturer's 
brand fails to sell, it can immediately be discarded, but the 
manufacturer who runs his own retail store must make his brand 
successful. 

5. Advertising, — The general advertising policy of the manu- 
facturer's chain must be made up with reference to the following 
considerations : 

(a) The interests of the retail stores. 
(6) The interests of the agencies. 

Many of the manufacturers' shoe chains do national advertis- 
ing in the interests of both. When it comes to local advertising, 
there has been some reluctance on the part of the local managers 
to run advertising matter which would help the agencies as well 
as themselves. This view, an essentially narrow one, has been 
generally discarded in favor of the policy that whatever helps 
the sales of the product will eventually help everybody concerned. 

Conclusions. — The retailer who starts a chain of stores is 
beginning at the bottom, and whatever manufacturing operations 
he may eventually take up, they are always in response to a 
direct demand from the retail outlets, and an advance indication 
that the products manufactured will be disposed of immediately 
at a profit. 

The manufacturer who starts a chain of retail stores in the 
endeavor to make his distribution more direct, or more uniform, 
or for any other reason, is commencing at the top and working 
down. He has to create a market for his product which is already 
being manufactured, and he must do this against strong competi- 
tion. He should choose an executive capable of handling the 
retail end of his business who will see to the choice of sites, the 



THE MANUFACTURER'S CHAIN 329 

building up of a personnel, sales policies, etc. And the manufac- 
turer is always hampered more or less by the inelasticity of the 
product he manufactures to shifting demand, a factor which the 
retail chain capitaHzes immediately. 

Whether a manufacturer should start a chain of retail stores 
is an individual question, depending on capital available, and a 
careful study of all the problems brought forward in this chapter. 



CHAPTER XXII 
THE GROCERY CHAIN 

The chain store idea in this country originated in the grocery 
field and it is but natural that it should there have its strongest 
hold even if we do not take into consideration that the selling 
of food products is our most important retail activity. The 
business of the average independent grocer is not large enough 
and in many cases never can be large enough to develop maximum 
efficiency in purchasing, merchandising, and accounting. Thus 
at the start the chain grocery store occupies a favored position 
in the way of competition. Some chain grocers do not even con- 
sider the independent competition but only that of other chains. 

Although there are no exact figures, it is estimated that there 
are about 4,000 wholesale and 350,000 retail grocers in the Uni- 
ted States. Alfred H. Beckmann, Secretary-Treasurer of the 
National Chain Grocers' Association, is authority for the state- 
ment that there are less than seventy-five responsible chain 
grocery store organizations, operating not over 50,000 stores. 
Taking into consideration the fact that only one seventh of the 
total retail grocers are made up of chain links, there seems to be 
a broad field still undeveloped. Naturally, with the spread of 
the chain stores and the elimination of the weaker independent 
stores, the number of wholesale grocers will also decline, since 
the chain organization takes upon itself the functions of the 
jobber, that is, the purchasing from the manufacturer, the 
warehousing, and, incidentally, the profit. 

The metropolitan districts have served best up to this point 
for grocery chain development. Within a few years they have 
advanced from supplying 12 per cent, of the retail grocery trade 
to supplying one half of it. In Philadelphia, which is the strong- 
hold of the chain grocery store, the percentage is even higher. 

The Chain Grocery Field. — There are several types of so-called 
grocery chains. We have the regular chain grocer handling all 
brands asked for by customers and selling a private brand in 

330 



THE GROCERY CHAIN 331 

competition, we have the self-service type handhng nationally 
advertised goods only, and we have the restricted-products 
type, handling tea, coffee, butter, eggs, and a few dry staples. 
Last, we have a few quality grocery chains, giving delivery, 
allowing credits etc., which are frowned upon by the cash-and- 
carry type. 

1. The regular grocery chain, — In most respects this type of 
grocery store is no different from its independent competitor. 
It carries approximately the same products, but not so many 
lines, there are no ^^ shelf warmers,'^ and the tendency is always 
towards packaged goods where possible. In methods, of course, 
the chain grocery is infinitely superior to the independent; the 
same is generally true of location. This type of chain store 
normally does some manufacturing or distributing on its own 
account. The larger chains do a great deal of their manufac- 
turing; the smaller chains concentrate on some particular line, 
such as breadstuffs. 

2. The self-service type, — This is a new comer to the chain 
field, and long enough time has not yet elapsed to demonstrate 
the exact possibilities inherent in such a scheme. It seems 
better fitted for the grocery field than any other, and, as pointed 
out elsewhere, it is more adapted for downtown sites than for 
suburban. These stores sell only nationally advertised goods, 
following out their policy of handling only the best known 
articles and products. 

3. The restricted-products type, — A great many of these 
stores started out as retailers in teas and coffees and found it 
convenient to take on additional lines, butter, eggs, beans, etc. 
In general, the stock of the chain grocery store is more restricted 
in number of items than the independent store, but the tendency 
seems to be to enlarge the line of goods carried once it is proved 
conclusively that there is a public demand for the new products. 

4. Quality chains. — This type of chain started from a single 
store always and then acquired branches. In many cases the 
management still dislikes the word chain as applied to this or- 
ganization because it is felt that a chain denotes cash-and-carry, 
which is precisely what they seek to avoid. As is natural, these 
chains are comparatively small, first, because their class of 
trade is limited to those with money, and second, because it is 



332 CHAIN STORES 

SO much more difficult to standardize the individual service on 
which the trade of this type of chain is founded. 

Rarely, as in the case of Chas. M. Decker & Bros., both 
cash-and-carry and service stores are operated by the same 
management. 

The Grocery Chains. — In the last ten years or, in fact, from 1910 
onward, there has been tremendous growth in the chain store 
organizations. There was a long-felt want in the community to 
be filled. The prejudice against the chain store had almost 
vanished. When the war broke out, and prices rose to unprece- 
dented heights, and even staple commodities were scarce, the 
chain store progress was rapid. In the short space of three years, 
from 1914 to 1917, the Great Atlantic & Pacific Tea Co. opened 
over twenty-two hundred new stores. 

Contrary to the drug field, where the Liggett Co. is far in the 
lead, in the grocery field the different chains are strung out with 
the Great Atlantic & Pacific Tea Co. in the lead, the American 
Stores Co. second, and the Kroger Grocery & Baking Co. third. 

The following list gives an idea of the more important grocery 
chains operating at this time, although this list may be incom- 
plete or inaccurate as far as some chains may be concerned, owing 
to the rapid growth and the difficulty of obtaining information. 
The majority of this list was compiled by the National Chain 
Grocers' Association. The chains are listed in the order of size. 

No. OF 

Company Head Office Stores 

Great Atlantic & Pacific Tea Co Jersey City, N. J. 5,000 

American Stores Co Philadelphia, Pa. 1,400 

Kroger Grocery & Baking Co Cincinnati, Ohio 1,125 

Piggly Wiggly C orp Memphis, Tenn. 710 

James Butler, Inc New York City 577 

Thomas Roulston Brooklyn, N. Y. 400 

National Grocery Co Jersey City, N. J. 351 

M. O'Keeffe, Inc Boston, Mass. 330 

John T. Connor Co Boston, Mass. 291 

Daniel Reeves, Inc New York City 247 

Grand Union Tea Co Brooklyn, N. Y. 196 

Globe Grocery Stores, Inc Brooklyn, N. Y. 193 ^ 

Flickinger Stores, Inc Buffalo, N. Y. 188 

C. F. Smith Co Detroit, Mich. 187 

Chas. M. Decker & Bros. Thrift Stores. Orange, N. J. 162 

Eagle Grocery Co Jersey City, N. J. 161 

P. H. Butler Co PittslDurgh, Pa. 151 



THE GROCERY CHAIN 333 

No. OP 

Company Head Office Stores 

Sanitary Grocery Co Washington, D. C. 150 

The Ginter Co Boston, Mass. 150 

H. C. Bohack Co., Inc Brooklyn, N. Y. 148 

Andrew Davey, Inc New York City 137 

Mayflower Stores Co Providence, R. I. 101 

Fisher Bros. Co. Cleveland, Ohio 101 

L. W. Rogers Co Atlanta, Ga. 93 

Mathew Smith Grocery Co Cleveland, Ohio 90 

Thrift Grocery Stores, Inc Buffalo, N. Y. 87 

H. G. Hill Grocery Co Nashville, Tenn. 83 

D. Pender Grocery Co Norfolk, Va. 69 

Star Cash Stores Co Dallas, Texas 68 

The Quaker Maid, Inc Louisville, Ky. 67 

Sam Seelig Co Los Angeles, Cal. 66 

Rose Tea Co Boston, Mass. 66 

S. B. Charters Grocery Co Pittsburgh, Pa. 66 

Mutual Grocery Co Newark, N. J. 62 

H. G. Chaffee Co Los Angeles, Cal. 61 

Nickolson-Thackeray Co Pawtucket, R. I. 60 

Union Supply Co Pittsburgh, Pa. 58 

Economy Grocery Stores Co Cambridgeport, Mass. 52 

Gristede Bros New York City 52 

E. E. Gray Co Boston, Mass. 52 

Hill Grocery Co., Inc Birmingham, Ala. 52 

Progressive Grocery Stores New York City 52 

Almar Tea Co Philadelphia, Pa. 50 

F. W. Albrecht Grocery Co Akron, Ohio 50 

Mr. Bowers' Stores Memphis, Tenn. 48 

Mohican Co New York City 48 

J. W. Crook Baltimore, Md. 47 

A. F. Beckmann & Co., Inc New York City 46 

H. P. Hood & Sons Co Charlestown, Mass. 46 

Wright & Parker Detroit, Mich. 46 

Union Pacific Tea Co Newark, N. J. 44 

Logan Bros Bridgeport, Conn. 41 

Atlas Economy Grocery Stores, Inc .... New York City 39 

L. Oppenheimer New York City 37 

American Food Co Newark, N. J. 36 

Cox's Cash Stores Little Rock, Ark. 36 

The Red Stores Chattanooga, Tenn. 35 

Great Eastern Stores Co Paterson, N. J. 30 

Whiddon Cash Stores Jacksonville, Fla. 29 

Knoblock Bros Baltimore, Md. 25 

Acker, Merrill & Condit Co New York City 22 

Heller's, Inc San Diego, Cal. 17 

Park & Tilford New York City 11 



334 CHAIN STORES 

A glance at the above list shows that in the grocery line, 
far more than in the drug line, the chain idea has gained great 
impetus. As soon as a chain grocery obtains over 25 member 
stores, it is placed in a position of advantage, both as to purchas- 
ing economies and the inevitable publicity attached to the 
activities of the larger chains. 

The Great Atlantic & Pacific Tea Co. — There was but one 
Great Atlantic & Pacific Tea Co. store in 1859. To George H. 
Hartford, who died in 1917, is due the credit for initiating the first 
successful retail grocery chain. The idea, as conceived by him, 
was carried out and is still being carried out. Stores are added 
only as they seem warranted. Yet owing to the great size of the 
chain, the new links come with surprising frequency. A glance 
at the table below shows increase in number of stores operated 
since 1910. 



1910 


372 


1916 


2,866 


1911 


404 


1917 


3,232 


1912 


447 


1918 


3,799 


1913 


628 


1919 


4,246 


1914 


1,001 


1920 


4,508 


1915 


1,726 


1921 


4,744 



From 372 stores to 4,744 stores in 11 years is a notable achieve- 
ment, even considering that it is a chain of retail stores. Further- 
more, the company does a great amount of business in foodstuffs. 
In 1919, it sold 50,000,000 pounds of coffee; 35,000,000 pounds of 
butter; 20,000,000 dozen eggs; 150,000,000 pounds of flour; 
200,000,000 pounds of sugar; 300,000,000 pounds of potatoes; 
68,400,000 cans of milk; 200,000,000 cakes of soap. The com- 
pany employs approximately 17,000 men. 

The Great Atlantic & Pacific Tea Co. is the only great national 
grocery chain. It has succeeded in solving sectional difficulties 
and in establishing its stores in all corners of the United States. 
After experimenting with various policies, it abandoned credits 
and deliveries in 1912 and later on adopted the policy of selling 
products asked for by the customers but of manufacturing as 
much as possible of its own products to compete either in price 
or in unit volume of the product. 

Other Chains. — The American Stores Co., as explained else- 
where, is a combination of several smaller chains to form the 



THE GROCERY CHAIN 335 

second largest grocery chain in the country. But the Kroger 
Grocery & Baking Co. is, Hke the Great Atlantic & Pacific Tea 
Co., the creation of one man. B. H. Kroger in 1884 owned one 
store in Cincinnati, Ohio, called the Great Western Tea Co. In 
1885, he had three stores, each located on what he considered 
a profitable site. At an early stage in the development of his 
chain, he adopted two policies. 

1. To buy direct in so far as possible. 

2. To sell his products at as low a price as was consistent with the cost 
to him, regardless of competitors' prices. 

Needless to say, he incurred immediately the enmity of the 
independent grocers, the jobbers, and the wholesalers, and of 
many manufacturers who disliked seeing their prices cut. In 
1891 he had seven stores, and in 1902 thirty-six. 

As soon as he had laid up some money he spent it in advertising 
in newspapers. The appeal, of course, was based on low prices, 
and this policy, also, was bitterly resented by his opponents. 
But it allowed many of his stores to turn their stock twenty 
times a year, and he continued. As he came into contact with 
middle-men who refused to sell as he required, he turned them 
down and started manufacturing on his own account. He made 
cake, candy, and canned goods, and put up his own brand of 
coffee. Then he bought fifteen grocery stores at Dayton, Ohio, 
and changed the name to the Kroger Grocery & Baking Co. In 
1904, he bought a packing house and made the retailing of meat 
one of his major activities, although meat is not sold in all stores. 
In 1908, sixty stores were added at one stroke. Mr. Kroger has 
founded a bank in Cincinnati, built an interurban railroad, and 
owns a great deal of real estate. And his chain of stores keeps on 
growing. Not content with cutting out wholesalers, he has cut 
out commission brokers, and is buying his produce direct from the 
farmers on a commission or cash basis. 

The story of the Kroger Grocery & Baking Co. is typical 
of many other chains. But there are peculiar features in indivi- 
dual chains. The Ginter Co., operating a medium-sized chain of 
grocery stores in and around Boston, also operates a chain of 
restaurants serving food at moderate prices. This venture has 
proved very successful, both from the point of view of the 
restaurant business and from the publicity obtained. 



336 CHAIN STORES 

The Piggly Wiggly Co. — In five years, the business of the 
Piggly Wiggly Co. grew from nothing to $5,000,000 a year. In 
1916 the first Piggly Wiggly store opened in Memphis and three 
years later Piggly Wiggly Stores Inc., was formed. This cor- 
poration acquired immediately about 125 stores out of about three 
hundred privately-owned stores which were operating the Piggly 
Wiggly patent. On October 1, 1920, 515 stores were operating in 
150 cities in 28 states, of which the company owned 340. 

The idea was invented and patented by Clarence Saunders of 
Memphis, Tenn. It was to standardize everything down 
to the last degree. First the store was standardized, then the 
stock, then the personnel, and finally the customer. That is, the 
customer has to do the work of picking out what articles he 
wishes, thus saving the time and labor of the clerk. 

Mr. Saunders, as the Dry Goods Economist says, had experts 
study handling and serving, with the idea of eliminating all lost 
motion, decreasing handling costs to a minimum, and cutting 
out all waste. Thus the modern up-to-date labor-saving devices 
for the handling of goods are found in the Piggly Wiggly stores. 
Devices are arranged so that employees handle merchandise only 
once, and porters and others employed in the store each have a 
definite task to do. Though they may be in the aisles while the 
customers are passing through them, they are forbidden to touch 
any merchandise or aid the customer in selecting merchandise. 
Their job is standardized. They have so much to do, no more, 
no less, and are forbidden to go beyond the work assigned to 
them. 

The management has attempted to reduce the operation of the 
individual store, as far as possible, to a science and, with this 
view in mind, it has formulated a complete set of rules governing 
all probable contingencies. For example, if the customer by 
accident causes any damage the rule reads as follows: 

'^ Should the customer inadvertently or through any other 
cause knock from a shelf a bottle or package of anything that 
breaks and is thereby ruined for sale, and should the customer or 
any visitor do any damage about the store which is not done witfi 
maHcious or wilful intent, it will be considered the duty of the 
employee who sees damage result through action of such customer 
or person to tell that person that such a one is not in any wise to 



THE (mOCERY CHAIN 337 

blame; even should such a person offer to make paynu^nt, the 
money must be refused and customer made to feel that such 
accidents will happen sometimes/' 

Even the number of keys to the store is mapped out in a little 
booklet setting forth the conduct of the stores and the store 
personnel. 

The Piggly Wiggly stores, as Mr. Saunders says, are an experi- 
ment in practical store psychology. People laugh when they 
see the name for the first time, but they are interested and they 
remember it. The next time they go by, they stop and make a 
purchase and immediately cease laughing. On the shelves they 
not only see what they are intending to buy but also many othcn* 
things they had not intend(*d to purchase but the sight of which 
makes them realize they would like to have that particular item. 
Thus sales per customer are increased. The basic principle of 
the standardized store layout and equipment is that each 
customer must pass all products for sale. 

The Degrees of Standardization. — All grocery chains are 
fairly well standardized. But there is a difference of degree. 
It becomes such a science in the larger grocery chains to get 
every possible penny that they keep a check on how much paper 
and string each store uses so as to eliminate waste. Also they 
charge each store with the wood boxes that hold the canned goods 
and allow credit of five or ten cents a box when boxes are rcturn(»d 
to the warehouse. 

The larger the chain, the more the tendency towards standardi- 
zation, due of course to lack of contact of management and 
personnel. In the case of inventory, for example, many chain 
stores keep an almost exact-to-the-penny inventory of the 
stock each store contains. These records are so exact that, if 
there is a 3^^ cent a pound drop in the price of navy beans, they 
weigh up the beans in each store and credit that store for the 
reduction on the books. Similarly, if beans go up }y'2 cent, each 
store is charged with that extra 3-^ cent for every pound of beans 
in stock. Working this way, it is possible to tell almost to a 
penny whether the management is getting every bit of profit which 
that store makes, or whether the store manager is making some- 
thing for himself. Such a microscopic treatment of price changes 
is best suited for a large chain, but in the smaller chains it is 

22 



I 



338 CHAIN STORES 

simpler to check up on price changes no oftener than once a 
week. Some chains require weekly changes on staple goods and 
intermittent changes on dairy goods which may vary considerably 
during a period of seven days. 

The larger chains can afford to demand a closer standardization 
of method because they can afford to operate the machinery. 
Every refinement in accounting necessitates the weighing of 
the result to see whether it justifies the expenditure in clerk hire. 
The small or medium-sized chain must adapt its standard practice 
to its resources, just as the independent store keeper cannot 
compete with the chain store on the ground of individual store 
efficiency of operation, but must resort to service to retain a 
hold on his customers. 

The Location. — Generally the grocery store seeks the cheaper 
locations, but as its chief hold is in the residence districts, 
rents are not so high, and it can usually obtain locations near 
the center of business. Location, however, is one of the essential 
features of chain grocery operation, as great reliance is placed 
upon the efficiency of the window display. 

It was discovered by experience that one chain could locate 
near another and not cause any perceptible diminution in the 
trade of either store. In fact, some stores have claimed that 
their business was positively increased. Relying on this fact, 
some curious results have happened. In some communities a 
single chain store has become well established. A rival chain 
wishes to establish a branch there, and judging that the original 
chain has already done the missionary work of prospecting for a 
site, it establishes itself as closely as possible to the original 
chain store, sometimes next door. Sometimes a third chain 
follows and fixes itself near the first two. 

In one town the original chain store was located at some dis- 
tance from the center and the other two chain stores settled 
in close proximity. The result was that the trade was not 
sufficient to go round and a fourth chain store, locating afterwards 
at the center, obtained the bulk of the trade. In other words, 
there is naturally a saturation point for chain stores at a certaifi 
location. 

Grocery chain stores do well in suburban localities, and in 
recent years have invaded quality locations with surprising 



THE GROCERY CHAIN 339 

success. Automobile trade has had much to do with this as in 
this case the fact that the chain does not dehver makes httle 
difference. The discovery that chain stores could prosper in 
rich locahties marked a new phase of chain store development. 
One point to notice in regard to the location of the grocery 
chain store is that it is situated in many cases in small com- 
munities supporting no other type of chain enterprise. In this 
respect it has been the pioneer. In no other field has the chain 
idea been extended so far as to cover small communities. 

The Manufacturer and the Chain Grocery. — Strangely enough, 

it was a long time before the manufacturer could be brought to 

see that his best interests lay in cooperating with the chain store 

instead of working against it. He labored under the mistaken 

impression that the chain idea was only a fad and that if he openly 

' incurred the hostility of the wholesale grocers, he would find 

I himself in the long run left out. Although wholesalers origin- 

' ally fostered the chain stores, they became their bitterest enemies 

as soon as the chains began to try to buy direct, and to pocket the 

\ jobbers' discount. 

< A. H. Beckmann, for many years secretary of the National 

j Wholesale Grocers' Association, and now. Secretary of the 

National Chain Store Grocers' Association, has the point of view 

of one who is well acquainted with both sides of the question. He 

I says that in selling responsible chain grocery store organizations, 

j the manufacturer eliminates a considerable overhead expense 

j in the cost of travelling salesmen. The chain is able to buy 

carloads where the individually-owned grocery can buy only in 

j small quantities. 

] Most manufacturers recognize the economy of the chain store's 
distribution both in buying and selling. The so-called retail 
1 grocer must necessarily buy from the wholesaler or jobber on 
, account of his small volume in buying, and his credit risk, which 
i the wholesaler or jobber must assume. The wholesaler or jobber 
1 is compelled to maintain a large sales force to take care of the 
» retail trade, in addition to which the manufacturer employs 
j specialty salesmen who call on the retailer also, and turn over 
I the orders taken to some jobber for execution, all of which adds 
I to the cost and for which the consumer must pay. 
' A manufacturer desiring to place his product on the market 



340 CHAIN STORES 

through a chain of stores — whether it operates 50 or 5,000 
stores — need send only one representative to the headquarters of 
the chain grocery store, where the sale is consummated, if the 
article has merit, and immediately distribution follows in all 
stores operated by that chain. This is a decided advertising 
advantage. 

In large cities distribution by manufacturers could be handled 
economically and it is only a question of time when the larger ones 
will have distributing organizations similar to the National 
Biscuit Co., Procter & Gamble Distributing Co., Kirkman & 
Son, the Heinz Co., and other manufacturers. The jobber or 
wholesaler will develop into a manufacturer even more than he is 
now, or handle specialties, for, as the chain store increases, so does 
the wholesaler or jobber decrease. 

The average retailer, or rather the majority of small retailers — 
and they are in the majority — have as a rule little capital when 
they enter business, and the- wholesale grocer extends a line of 
credit in addition to furnishing the opening stock. Immediately 
the retailer is established, he is called upon by the salesmen of 
other wholesale grocers — a duplication of overhead expense — and 
the wholesaler, who is really entitled to all that retailer^s business, 
finds his sales diminishing and is obligated to wait the pleasure 
of the retailer for payments on goods purchased, ranging from 
30 to 60 days, or even longer, further emphasizing the credit evil. 
Not less than 75 per cent, of retail grocers require credit accommo- 
dation of the wholesale grocer, while the chain grocer both buys 
and sells for cash. 

Conclusions. — Nothing said in the course of this chapter should 
lead the man ambitious to start a chain of retail grocery stores to 
think the task is easy and that all that is necessary is to open a 
series of stores and wait for profits. The reverse of the case 
is more often true. The owner of a chain of grocery stores is 
confronted with the keenest kind of competition, not only for 
trade but also for sites, and in merchandising policies. The fact 
that the competition is ordinarily conducted on a fair and squarp 
basis docs not render it any less formidable. 

There are six fundamentals for success in this line, irrespective 
of other factors; 



THE GROCERY CHAIN 341 



1. Sufficient capital. 

2. The right location. 

3. Purchases direct. 

4. Economies in operation. Cash-and-carry. 

5. Well-known, high-grade merchandise. 

6. High turnover and low margin of profit. 



CHAPTER XXIII 
THE DRUG STORE CHAIN 

Next to the grocery field, there are more chains in the drug 
field than anywhere else. The chains are not particularly re- 
markable for their size but rather for their numbers. In 1921, 
there were 303 drug chains operating over three stores, in all 
1763 stores. In 1920 there were 315 chains but only 1563 mem- 
ber stores. This illustrates an evident tendency towards com- 
bination among the chains, a symptom which is common to nearly 
all types. 

The chain store movement in the drug field has come com- 
paratively late. The difficulties in the way of standardizing 
drug store operation were far greater than in the case of the 
grocery or the cigar field. They were even greater than in the 
case of the five and ten cent store field. Most of the present 
drug store chains have been operating but a few years, notably 
the National Drug Stores and the United Retail Chemists 
Corporation both newcomers, yet both among the first ten in size. 
The Liggett Co. is by far the largest and bids fair to keep this 
position for some time. 

Figure 55 shows the relative position of the drug stores operat- 
ing 10 links and over. Twenty-one chains operate 618 stores 
or over a third of the total of stores operated by the entire 303 
chains. This clearly illustrates that the drug field is yet essen- 
tially a small chain field. But the fact that large capital and 
modern methods in the National Drug Stores and the United 
Retail Chemists Corporation have made such rapid growth 
points to a probable exploitation of the drug field by chains to a 
much greater extent than at present. 

Within a year of its organization, the National Drug Stores 
Corporation had 21 stores in operation and in 1921 it had 27. 
Although most of its stores are located in New York City, it 
purchased the Guilford chain in Rochester, New York, and has 

342 




THE DRUG STORE CHAIN 343 

stores in Massachusetts, New Jersey, Connecticut, and Pennsyl- 
vania. 

The Mykrantz Co. was organized in 1912 and at one time 
had thirty stores in operation in Columbus, Ohio, and its vicinity, 
but six stores were closed during 1921. The Dow Drug Co. was 
organized in 1915 and now operates 22 stores. The Miller- 
Strong Co., organized in 1908, now has 26 stores in Buffalo and 
surrounding cities. The history of the other chains is similar. 

LlGGETT-NewYork ?^? ^^— — ■^^— ^^^^■^— ^^ — 

OWL -San Francisco 

NATlONAL-NewYork 

MARSHALL-CIeveland 

MILLER-5TRON6-BuffaIo?|F 

WALGREEN-Chicago 

MYKRANTI-Columbus ^^JE 

SUN-Los Angeles ^'P^T" 

THlSTLEWAlTE-lndianopolis^^F— F 

DOW-Cmclnn«ii l\ f^^ 

UNlTED-NewYork- '|CT 

STANDARD-CIeveland II F^ 

SCHOLTI-MUTUAL-Denver It F^ 

DAY-Akron liEES 

SHUMATE'S-Sanfrancisco ',?IT 

HARVEYScCAREY-Salamanca IjES 

COOPERATIVE-Philaddphia ',^E5 ^ ,5^, 

FREUND-New Orleans ,'iH □ 1920 

DETROIT- Detro if \IB 

JACOBS -Aflant-a '.JH 

MAY-Pitisburgh ToH 

Fig. 55. — Chart showing relative positions of leading drug chains during 1920 

and 1921. 

Expansion has come only in recent years, even when founding 
dated back twenty years or more. 

The Louis K. Liggett Co. — The Louis K. Liggett Co., operating 
229 stores, and in a fair way to become a national drug chain, is 
the largest factor in the drug field. No discussion or description 
of this company is possible without a preliminary account of its 
connection with the United Drug Co. This company was formed 
in 1902, at a meeting in Boston of 35 retail druggists. Mr. 
Liggett, the guiding spirit of the organization, who had been a 



344 CHAIN STORES 

traveling salesman for Chester Kent & Co., manufacturers of 
Vinol and other proprietary medicines, had been impressed with 
three evils in the drug trade. 

1. There was a tendency of manufacturers to force retailers to overstock. 

2. There was substitution by the dealers of their own preparations in 
place of those of proprietary companies. 

3. There was a failure to maintain the manufacturer's indicated resale 
price. 

The original 35 members drew up resolutions to the following 
effect : 

1. The company was to manufacture only for stockholders. 

2. There was to be only one stockholder in each town. 

3. The company was to make and market at the outset at least 100 
remedies, all of which were to be sold under a single blanket trade-mark. 

4. Six of the 100 remedies were to be advertised extensively in season. 

5. The first lines to be advertised were to be a dyspepsia cure and a 
catarrh cure. 

6. All of the products, except the advertised remedies, were to be sold 
to the stockholders at such a price as would not net the corporation more 
than 25 per cent, on its gross selling price. 

7. Each preferred stockholder had to purchase as much stock in the 
company as the cost of the first year's advertising in his city. 

8. Control of the corporation was to be in the hands of the druggists 
themselves. 

9. As long as a stockholder owned common stock, he was to be a perpetual 
agent. 

The company, in addition to manufacturing drugs, has been 
interested in the manufacture of perfumery, of candy, and of 
stationery. Liggett also organized the Drug Merchants of 
America, a company formed to purchase other goods than were 
manufactured by the company for use in agencies. 

The Louis K. Liggett Co. was organized in Boston in 1907, 
five years after the foundation of the United Drug Co., to reheve 
the United Drug Co. of risk ef loss from a controversy as to the 
Boston agency. This dispute had originally started between 
the United Drug Co. and the Riker-Jaynes Co. This was 
the beginning. In 1910 the Liggett Co. had 26 stores while the 
Riker-Hegeman-Jaynes people controlled 58. In 1900 the 



THE DRUG STORE CHAIN 



345 



Hegeman Co. had four stores in New York and the Wm. B. 
Riker Co. had two stores, also in New York. 

By a process of combination the Riker-Hegeman-Jaynes 
people in 1916 had operating 107 stores. In this year the 
Liggett Co., operating 45 stores at the time, bought them out. 
Since that time the Liggett Co. has expanded steadily and to its 
policies and practices are due in great measure the present idea 
of the chain drug store as a retail outlet which can sell almost 
anything. 

Analysis of Drug Chains. — In 1900, the 14 leading drug store 



cnn 


1900 


1901 


1902 


1903 


1904 


1905 


1906 


1907 


1908 


1909 


1910 


1911 


1912 


1913 


1914- 


1915 


I91G 


1917 


1918 


1919 


1920 


1921 


550 
500 
































































































Store* 
Y^.r Ooerated 




















/ 


/ 


,n 400 










900 

902 


25 
33 
39 
64 
111 
167 
189 
254 
286 
344 
451 
501 


















/ 


/ 










904 
















/ 


/ 






2? 


906 


o 350 


908 








910 














^ 


y 








lO 


912 


*o 2*00 












916 








t>^ 


^ 


^ 












|250 


918 

920 

921 














X 
















izoo 

150 

100 

50 

' 










































^ 




































^ 


y 






































^ 


^ 






























- 















































I 


'iG. 


56. 


— ( 


>ro 


wth 


LOf 


fOL 


irte 


en 


eac 


ling 


;dr 


ug 


stoi 


-e c 


hai 


ns. 









chains of the country operated only 25 stores, that is, such of 
them as were in existence at that time. In 1921, these 14 chains 
operated 501 stores, or 20 times as many as in 1900. This is a 
fair rate of growth but not when it is considered what a field 
there still remains to develop. Of over 50,000 retail druggists in 
the country 1,763 of them are members of chains. 

Chain drug stores have, as yet, confined themselves mainly 
to the urban sections, with few attempts to cultivate the smaller 
towns and outlying sections. This, of course, is a phase in all 
chain development. Pick the easiest sites first. But in the 
next few years the growth of the chain drug stores should show 
a tendency towards the smaller towns and a tendency also to 



346 CHAIN STORES 

drop some of the strictly non-drug lines which would not prove 
profitable in small communities, owing to the smaller turnover. 

Figure 56 shows in graphic form the growth of the 14 chains at 
two-year intervals The growth in member stores went on unin- 
terruptedly during the period of depression of 1920 and 1921. 
The figures, compiled by the Druggists Circular, include the 
following companies: The Louis K. Liggett Co., the Owl Drug 
Co., the National Drug Stores Corp., the United Chemists Corp., 
the Mykrantz Co., the Dow Drug Co., the Marshall Drug Co., 
the Miller-Strong Drug Co., the Sun Drug Co., the Standard 
Drug Co., the Scholtz-Mutual Drug Co., the Day Drug Co., the 
Jacobs Pharmacy Co., and the Peoples Drug Stores. 

Figures furnished by the Druggists Circular and Drug Store 
Merchandising form the basis for an analysis which has been 
prepared of the extent of the chain movement in the retailing 
of drugs. Drug chains with only two stores have been included 
in this survey because otherwise a great many towns would have 
been left out, and these two store chains are all larger chains in 
embryo form. 

If the number of firms operating only two stores are added, 
the total number of chains is more than doubled. While the 
number of chains operating three stores or more is only 303, the 
number of chains operating two stores and more is 691, with a 
total of 2,627 stores. 

The names of those chains operating ten or more stores are 
the only ones mentioned. In every other case the name of the 
state and the town where the store operates is given, with the 
number of chains in that town and the number of stores in each 
chain. The great number of chains with but two stores gives 
food for thought. It shows that a great many of the smaller 
retailers are beginning to take advantage of the chain idea. 

A much fuller analysis of the situation would be necessary 
than is given here, for any person seriously contemplating 
establishing a chain of drug stores throughout the country, but 
the following figures will give a fairly general idea of the situation 
in the country as a whole and afterwards in the various cities 
and towns. 

When # appears before any name it means that the chain 
operates stores in other places than where it is credited. 



THE DRUG STORE CHAIN 
Summary of Drikj Store C'hains 



347 



State 



No. of chains 



Total stores 



Alabama 

Arkansas 

California 

Colorado 

Connecticut 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts. . . . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Jersey 

New York 

North Carolina. . . 
North Dakota. . . . 

Ohio 

Oklahoma 

Oregon 

Pennsylvania 

Rhode Island 

South Carolina. . . 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

Washington, D. C 
West Virginia. . . . 
Wisconsin 

Total 



4 

4 

34 

9 

8 

3 

16 

2 

65 

21 

8 

5 

18 

18 

1 

13 

28 

48 

22 

3 

34 

2 

5 

1 

12 

75 

6 

1 

51 

14 

3 

57 

9 

4 

11 

19 

5 

1 

6 

15 

12 

7 

11 

691 



12 
12 
175 
37 
28 
12 
61 

9 
219 
97 
32 
13 
50 
59 

2 

33 

84 

154 

63 

8 
97 

6 
17 

3 

28 

417 

17 

6 

264 

51 

7 
211 
34 
13 
32 
73 
33 

3 
20 
52 
36 
16 
31 



2,627 



348 



CHAIN STORES 



Details of Drug Store Chains by States 
Alabama — 12 



Town 


Chains 


Stores 


Total 


Birmingham 

Mobile . . . 


2 
2 


3 
3 


6 
6 







Arkansas — 12 




Argenta 

Fort Smith 
Little Rock 

San Francisco 



California — 175 



Los Angeles. 



Napa 

San Bernadino . . 

Riverside 

Oakland 

San Diego 

San Luis Obispo . 



#The Owl Drug Co. 
Shumate's Pharmacies 

1 
#1 

2 

5 

3 
#Sun Drug Co. 

1 

2 



Colorado — 37 



Denver 


#Scholtz-Mutual Drug Co. 




16 




2 


3 


6 




3 


2 


6 ' 


Grand Junction 


1 


3 


3 


Pueblo 


1 


2 


2 


Trinidad 


1 


4 


4 



THE DRUG STORE CHAIN 



349 



Details of Drug Store Chains by States {Continued) 
Connecticut — 28 



Town 


Chains 


Stores 


Total 


Bridgeport 


J. A. Lovorty & Bro. 
1 
4 

1 

#1 


2 
2 
2 

6 


10 


Hartford 


2 

8 


New Haven 


2 


Waterbury 


6 


Washington, D. C— 36 




People's Drug 

3 
8 


11 
3 
2 


11 

9 

16 




Florida— 12 






Jacksonville 

West Palm Beach . . . 


1 
1 

#1 


5 
2 
5 


5 
2 
5 


Georgia — 61 


Atlanta 

i 

Athens 


Jacob's Pharmacy Co. 


10 

4 
3 

4 
2 
2 
2 

2 
3 
5 

4 

8 
2 


10 
5 
4 
6 
2 
4 


i Augusta 


2 


j Dover 




2 


] EubUn 


2 


Columbus 

Macon 


2 
3 
5 


Savannah 


4 

8 




2 


i -• 

Idaho— 9 


American Falls 

i Boise 


1 

1 


3 
6 


3 
6 







350 



CHAIN STORES 



Details of Drug Store Chains by States (Continued) 
Illinois— 219 



Town 


Chains 


Stores 


Total 


Chicago 


Walgreen Co. 


25 


25 




Central Drug Stores 


10 


10 




3 


7 


21 




1 




6 




4 


4 


16 




20 


3 


60 




20 


2 


40 


Danville 




2 
3 


8 


Elgin 


3 






2 


2 


Jacksonville 




3 
2 


6 




2 


Peoria 




4 
3 


4 




3 






2 


2 


Quincy 




6 


6 


Rock Island 




3 


3 


Springfield 




2 


2 



Indiana — 97 



Indiananolis 


1 


7 


7 




1 


6 


6 




1 


4 


4 




6 


3 


18 




4 


2 


8 




Clem Thistlewaite 


24 


24 


CUnton 


1 


3 


3 


Gary 


1 


3 


3 


Fort Wayne 


#1 


9 


9 


Muncie 


1 


3 


3 




1 


2 


2 


South Bend 


#1 
1 


5 
5 


5 


Terre Haute 


5 



Iowa— 32 



Burlington . . 
Davenport . . 

Des Moines. 

Sioux City . . 
Waterloo ... 




THE DRUG STORE CHAIN 



351 



Details of Dkug Store Chains by States {Continued) 
Kansas — 13 



Town 


Chains 


Stores Total 


Crowsburg 

Hutchinson 

Kansas City 

Ottawa 

Wichita 




2 

3 
2 
3 
3 


2 

a 

2 
3 
3 



Kentucky — 50 




Louisiana — 59 



I New Orleans. 



Bogalusa . 



Paul Freund, Inc. 
1 

7 
8 
1 



1 


11 


6 


6 


3 


21 


2 


16 


5 


5 



Maine— 2 



Bangor. . 



Maryland — 33 



Baltimore 


1 


8 


8 




1 


4 


4 




9 


2 


18 




1 


3 


3 



352 



CHAIN STORES 



Details of Drug Store Chains by States (Continued) 
M assachusett s — 84 



Town 



Chains 



Stores 



Boston 

Allston 

Bridgewater . 
Brookline . . . . 
Cambridge . . . 
East Boston. 

Lowell 

Lynn 

New Bedford 

Marlboro 

Onstable. . . . 
Plymouth. . . 

Quincy 

Roxbury .... 
Salem 

Springfield . . . 



4 
2 
3 
3 
3 
5 
3 
2 
3 
3 
2 
2 
4 
4 
3 
4 
6 
3 
3 
2 



Michigan — 154 



Detroit . 



Adrian 

Ann Arbor. . , 
Battle Creek, 
Bay City .... 

Flint.. 

Grand Rapidi 

Ishpeming . . . 
Lansing 

Muskegon . . . 
Menominee. . 
Port Huron . . 

Pontiac 

Jackson 




THE DRUG STORE CHAIN 



353 



Details of Drug Store Chains by States (Continued) 
Minnesota — 63 



Town 



Chains 



Stores Total 



Minneapolis . 

St. Paul 

Duluth 

Rochester. . . 
Virginia 

Glendora .... 
Meridian . . . . 



2 
2 
1 
5 
1 
1 
5 
3 
1 
1 



10 
8 
3 

10 
4 
3 

10 
6 
3 
6 



Mississippi — 8 



6 
2 



Missouri — 97 



St. Louis 


1 




5 




4 


4 


16 




4 


3 


12 




9 


2 


18 


Kansas City 


1 


4 


4 




7 


3 


21 




6 


2 


12 


Joplin 


#1 


6 


6 




1 


3 


3 



Montana — 6 



Butte. 



Nebraska — 17 




Nevada — 3 



Ely. 



23 



354 



CHAIN STORES 



Details of Drug Store Chains by States (Continued) 
New Jersey — 28 



Town 


Chain 


Stores 


Total 


Harrison 

Jersey Citv 


1 
1 
1 
2 

6 
1 


3 
3 
2 
3 
2 
2 


3 
3- 


Newark 


2 
6 


West Hoboken 


12 
2 



New York — 417 



New York City 


#Louis K. Liggett Co. 


229 


229 




#National Drug Stores Corpora- 


27 


27 




tion 








#United Retail Chemists' Cor- 


18 


18 




poration 








1 


4 


4 




11 


3 


33 




7 


2 


14 


Albany 


1 


4 


4 




2 


3 


6 


Amsterdam 


1 


3 


3 


Auburn 


1 


4 


4 


Brooklyn 


1 


8 


8 




1 


6 


6 




2 


4 


8 




6 


3 


18 




7 


2 


14 


Buffalo 


#Miller-Strong Drug Co. 


26 


26 




4 


3 


12 




7 


2 


14 


Corning 


1 


3 


3 


Dunkirk 


1 


3 


3 


Elmhurst 


1 


7 


7 


Elmira 


1 


3 


3 




2 


2 


4 


Intcrlakcn 


1 


2 


2 


Lockport 


1 


3 


3 


Middletown 


#1 


7 


7 / 


Oswego 


1 


2 


2 


Plymouth 


1 


3 


3 


Rochester 


5 


3 


15 


Salamanca 


#naryey & Carey 


14 


14 


Yonkers 


1 


3 


3 



THE DRUG STORE CHAIN 



355 



To avoid confusion, the Liggett stores have been grouped in 
the New York chains, because the majority of the stores were 
located there, but actually the distribution is as follows. Italics 
indicate change in 1921. 



(Liggett's International, Ltd., now con- 
trols the chain of 630 Boot's Chemists' 
Shops in England, so the Liggett interests 
actually operate nearly 1,000 retail drug 
stores.) 

The Liggett stores are located in the 
following cities: 

Albany, N. Y 1 

Allston, Mass 1 

Atlanta, Ga 2 

Augusta, Ga 1 

Bangor, Me 1 

Binghamton, N. Y 1 

Birmingham, Ala 1 

Boston, Mass 15, 19 

Baltimore, Md 1 

Bridgeport, Conn 1 

Brockton, Mass 1 

Brookline, Mass 2 

Brooklyn, N. Y 12 

Buffalo, N. Y 3 

Cambridge, Mass 1 

Charlotte, N. C 1 

Chattanooga, Tenn 1 

Chester, Pa 1 

Cincinnati, Ohio 3 

Columbus, Ohio 2 

Detroit, Mich 4 

Des Moines, Iowa 1 

Dallas, Tex 1, 2 

Elizabeth, N. J 1 

Far Rockaway, N. Y 1 

Fitchburg, Mass 2, 1 

Fort Worth, Tex 1 

Germantown, Pa 1 

Haverhill, Mass 1, 2 

Hartford, Conn 1 

Holyoke, Mass 1 

Jacksonville, Fla 2 

Jersey City, N. J 1 

Johnstown, Pa 1 

Kansas City, Mo 2 

Lancaster, Pa 1 

Lawrence, Mass \, 2 

Lewiston, Me 1 

Long Island City, N. Y 1 

Lowell, Mass 2 

Lynn, Mass 3 

Maiden, Mass 1 

Macon, Ga 1 



Manchester, N. H 

Meriden, Conn 

Minneapolis, Minn 4, 

Mt. Vernon, N. Y 

Montclair, N. J 

Nashville, Tenn 

Newark, N. J 

New Bedford, Mass 

New Britain, Conn 

New Haven, Conn 

New Orleans, La 

Newport, R.I 

New Rochelle, N. Y 

New York City, N. Y . Gl, 5, 

Oklahoma City, Okla 

Passaic, N.J 

Paterson, N.J 

Pawtucket, R. I 

Philadelphia, Pa 9, . 

Pittsburgh, Pa 

Pittsfield, Mass 

Portland, Me 

Poughkeepsie, N. Y 

Providence, R. I 

Reading, Pa 

Richmond, Va 

Rochester, N. Y i 

Salem, Mass 

St. Paul, Minn 1, , 

Saratoga Springs, N. Y 

Schenectady, N. Y 

South Boston, Mass 

South Norwalk, Conn 

Springfield, Mass 

Springfield, 111 

Stamford, Conn 

Syracuse, N. Y 

Tampa, Fla 

Taunton, Mass 

Toledo, Ohio 

Trenton, N. J 

Troy, N. Y 

Utica, N. Y 

Washington, D. C 7, 

Waterbury, Conn 

White Plains, N. Y 

Wilkes-Barre, Pa 

Wilmington, Del 

Worcester, Mass 2 

Yonkers, N. Y 1 



356 



CHAIN store;^ 



Details of Drug Store Chains by States (Continued) 
North Carolina — 17 



Town 


Chains 


Stores 


Total 


Durham 




2 

3 
4 
3 
2 
3 


2 


East Durham 

Charlotte 


3 
4 


Raleigh 


3 


Wilmington 

Winston-Salem 


2 
3 



North Dakota — 6 



Fargo 

Akron 

Canton 

Bellaire. . . 
Cincinnati . 

Cleveland . 



#1 



Ohio— 264 



Columbus. . . . 

Dayton 

Elyria 

Kenton 

Lima 

Lorain 

Marietta 

Martins Ferry 

Salem 

Springfield . . . . 
Toledo 

Warren 

Youngstown . . 



Day Drug Co. 



#Dow Drug Co. 



Marshall Drug Co. 
Standard Drug Co. 
1 
1 
1 
9 
#Mykrantz Drug Co. 
1 
2 



15 



6 
3 
4 

22 
4 
3 

23 

16 
9 
5 
4 
3 

24 
3 
4 
3 
4 
3 
3 
3 
3 
3 
3 
5 
3 
3 
6 
3 



THE DRUG STORE CHAIN 



357 



Details of Drug Store Chains by States (Continued) 
Oklahoma — 51 



Town 


Chains 


Stores 


Total 


Oklahoma City 

S^airview 


#1 
#1 


5 
3 
2 
3 
2 
2 
5 
3 
3 
6 
5 
3 
4 
5 


5 
3 
2 
3 


Guthrie 


2 


Lawton 


2 


Muskogee 

Enid 


I 


)kema 


3 


kvannah . 

Shawnee 

Tulsa 

Ternon 


6 
5 
3 

4 
5 



Portland 



Oregon — 7 




Pennsylvania — 211 



Philadelphia 


#Co-Operative Drug Co. 


13 


13 


. 


#1 


8 


8 


* 


2 


5 


10 




2 


4 


8 




26 


3 


78 


' 


1 


2 


2 


iVltoona 


1 

1 

1 

#1 


5 
3 
2 

8 


5 


Ben Avon 


3 


Erie 


2 


Harrisburg 


8 




1 


3 


3 


Johnstown 


1 
1 
May Drug Co. 


4 

3 

10 


4 


Midland 


3 


Pittsburgh 


10 




#Gilchrist-Simpson Drug Co. 


10 


10 




1 


6 


6 




1 


4 


4 




6 


3 


18 




4 


2 


8 


Jcranton 


1 

1 


3 
2 


3 




2 


Wilkes-Barre 


1 


3 


3 



358 



CHAIN STORES 



Details of Drug Store Chains by States (Continued) 
Rhode Island — 34 



Town 



Chains 



Stores 



Providence . 



South Carolina — 13 



Anderson 


1 
1 


2 
3 


2 


Columbia 


3 


Greenville 


1 


5 


5 




1 


3 


3 



Tennessee — 32 



Chattanooga 

Knoxville . . . 
Memphis. . . . 
Nashville . . . , 
Union City . 

Abilene 

Brownwood . 
Coleman. . . . 
Dallas 

Fort Worth. 

Hillsboro . . . . 
Houston 

Kingsville. . . 
San Antonio. 

San Benito . . 



3 


6 


2 


4 


4 


4 


3 


9 


3 


6 


3 


3 







Texas— 73 




THE DRUG STORE CHAIN 



359 



r 



Details of Drug Store Chains by States (Continued) 
Utah— 33 



' Town 


Chains 


Store 


Total 


Salt Lake City 

Loean 


#Schramm-Johnson 

#1 

1 

#1 

#1 


11 
9 
3 
6 
4 


11 
9 
3 
6 


Provo 


4 



Vermont — 3 



Springfield . 





Virginia — 20 






Norfolk 


2 
1 
1 
2 


5 
3 
3 
2 


10 


Portsmouth 

Richmond 


3 
3 
4 







Washington — 52 



Centralia . 
Oly mpia . . 
Seattle . . . 



Spokane . 
Tacoma. 



3 


3 


4 


4 


8 


8 


5 


5 


3 


21 


3 


6 


3 


3 


2 


2 



West Virginia — 16 



Charleston . . 
Huntington . 
Parkersburg . 
Wheeling . . . . 



3 3 

2 2 

2 4 

5 5 

2 2 





Wisconsin — 31 






Madison 


1 


4 


4 




2 


2 


4 


Milwaukee 


1 


3 


3 




4 


2 


8 


Racine 


1 


6 


6 




2 


3 


6 



360 CHAIN STORES 

The preceding analysis should give any druggist a fairly com- 
plete idea of the chain competition he will have to face in any 
particular locality. 

Amount of Business Done. — It is difficult to arrive at any 
accurate figures which might indicate the total amount of busi- 
ness done by retail druggists in the United States and what 
percentage of it is done by chain organizations, but the following 
attempt at such a compilation has been made by the Druggist's 
Circular : 

There are approximately 50,000 retail druggists in the country 
and, according to typical figures published by the Bureau of 
Business Research at Harvard University, and to reports of 
investigations conducted by pharmaceutical journals, credit 
bureaus, and others interested in the subject, each of these 
retailers sells about $25,000 worth of merchandise every year, 
making a total of $1,250,000 000 annually for the group. 

Figures furnished by 15 of the 21 larger chain organizations 
show that these 21 corporations sell $76,000,000 worth of goods 
each year — practically six per cent, of the total amount sold by all 
the retail druggists in the country. In other words, these 21 
corporations receive $6 of every $100 spent each year in the drug 
stores of the country. 

The annual receipts of the Louis K. Liggett Co., operating 
about 200 stores during 1919, were $30,000,000. The Owl Drug 
Co., with 30 stores, sold $8,124,000; the Mykrantz Co. with 30 
stores $1,250,000; the Jacobs Pharmacy Co. with nine stores 
$1,200,000; the Scholtz-lNTutual Co. with 14 stores and the 
Miller-Strong Co. with 19 stores each, $1,250,000, etc. 

The fact that the chain di'ug stores as yet do so little of the 
drug business proves that there is a large field still waiting for 
chain development. 

Location. — The drug store is one of the lines of business where 
it seems that the proper site is necessary. Even the retailer 
recognized this fact, as the term ''corner drug store'' indicates. 
As statcnl before, up to this time the chain drug stores have sought 
out the busy down-town corners where the largest amount of 
traffic passes. There is a limit, however, to this phase of devel- 
opnuMit and IIk^ time should shortly come when the suburban 
districts will ])o invaded by chain drug stores. 



THE DRUG STORE CHAIN 361 

The key of business success is percentage, and when $500 a 
month rent is paid for a store it is considered not in terms of 
dollars, but in percentage. If the location can bring four per cent, 
business all well and good. If not, the location must be changed. 
The first point of differentiation between the chain drug 
store and the independent store is in location. The chain store 
relies on the transient trade secured by its down-town location 
while the independent drug store relies on regular customers. 
The result of this location leads to the second point of differenti- 
ation, the type of product sold. 

The Product. — The great danger that the chain drug store has 
had to face is to avoid becoming a department store. Owing to 
its advantageous location, it found itself able to sell almost 
anything from fresh eggs to phonographs. There was also a 
tendency towards the soda fountain and away from the pre- 
scription counter. This, however, was found to be a mistake, as 
the prescription counter turned out to be a very vital part of the 
drug storeys pulling power. Without the prescription counter, 
I the drug store lost its individuality. Some drug chains intro- 
I duced lunch counters which served sandwiches and salads, 
j following out the soda fountain idea. The success of this 
, feature depends largely of course, upon the location of the store. 
' At present, the products carried in drug stores are not stand- 
ardized. The purchasing department of each chain decides 
I what the stores can sell and stocks up accordingly. Customers 
j have got in the habit of going to the drug store for almost any- 
' thing they desire. One way for an up-to-date druggist to fore- 
i cast the products he should carry is to observe' the success of 
1 his competitors with their hnes. Writing paper is univereally 
stocked. Hair nets at one time were not carried by the depart- 
I ment stores, and were taken up by a large drug chain with success. 
' Other drug stores followed this example and stocked hair nets 
successfully. The chain stores as a rule set the fashion for 
i products which can be carried by drug stores. If the experiment 
, works with them, others follow their example. 
j Advertising. — The third point of differentiation is the advertis- 
( ing. The chain store advertises; few independent stores can. 
I The chain, owing to its metropolitan location, can take full 
pages in the big dailies and be sure that the results of this adver- 



362 CHAIN STORES 

tising will be spread around among its stores. It does happen 
occasionally that an independent store, desirous of obtaining a 
reputation as a price cutter, will run cut-price advertisements, 
but these attempts are rare and not always successful. 

The problem of the small suburban druggist is a difficult one. 
How is he going to let people know what he carries? This 
same question is going to confront the chain drug store when it 
invades suburban locations. The answer seems to be that the 
metropolitan advertising of the chain will have to serve for 
the suburban districts, most of the inhabitants of which read 
the city daily papers. Many of these suburbanites already buy 
at chain drug stores in the city and the extension of the chain 
to the suburb will only make the purchasing easier for them. 

Sales Policies. — The largest chain drug store organizations 
do their own manufacturing in large part. And they obtain 
jobbers' discounts on proprietary medicines. Thus they have 
at once the facilities for making themselves cordially disliked 
by their independent competitors and by manufacturers. They 
can cut prices and they can sell their own goods. 

The one-cent sale has already been discussed. The chain 
drug store, like the chain grocery store, relies on loss leaders 
frequently, of which the one-cent sale idea is only a novel form. 
As for substitution, the practice is slowly dying out and the 
customer may be fairly certain of getting what is asked for. 

Conclusions. — The situation in the drug field seems to be 
briefly as follows: 

1. There is but one large chain in the field; there are about twenty chains 
operating between 30 and 10 stores, and a great many small chains. 

2. The drug chains have as yet availed themselves of a very small part 
of the total possibilities. 

3. There is already a tendency to enlarge the number of stores per chain 
and decrease the number of chains. 

4. The chain drug store has an advantage over its independent com- 
petitor in location, sales turnover, advertising, management, and a knowl- 
edge of the principles of retail store operation. 



CHAPTER XXIV 

THE FIVE-TEN-TWENTY-FIVE-CENT STORE CHAINS 

The five and ten cent store chain differs from the drug and 
grocery chains not so much in principles of operation as in physical 
characteristics. There is the same necessity for careful account- 
ing and for routine practice but there are certain factors which 
complicate the situation, such as the following: 

1. The five and ten cent store chain has a labor problem. 
Each five and ten cent store has in its employ a certain number 
of clerks, usually a less highly trained selling type, working for 
lower wages. 

2. The size of each unit in a five- and ten-cent store is inevitably 
large, and because of the wide variety of goods carried it is 
necessary to secure requisite turnover. 

3. Goods are sold at a fixed price, five, ten, twenty-five cents, 
or in some cases the stress is laid on the odd cents, three, nine, 
and nineteen cent stores. The price problem is at once made 
simpler and more difficult. The labor of registering and follow- 
ing up constant price changes is removed, but, on the other hand 
a sufficient variety of goods must be found to retail at these 
fixed prices. 

4. A five and ten cent store satisfies a much larger area than 
either the grocery or the drug chain store. But because all 
classes of small articles used in every day life are sold, that is, 
convenience goods, the five and ten cent stores have been able 
to operate profitably in communities with eight thousand 
inhabitants. Contrary to other types of chains, the five and ten 
cent store originated in a small town in Pennsylvania and it was 
some time before it was operated in large cities. But the neces- 
sary distance of the various units of these chains from other 
units of the same chain causes a more decentralized organization. 
Each manager has more responsibility. 

The Field. — The size, the territory covered, and the publicity 
connected with the operations of a few of the largest chains in 

363 



364 



CHAIN STORES 



the field have almost made it appear as though this class of 
chains was limited to a few strikingly successful examples, and 
that the field was entirely closed to the ^Uittle fellow.'^ As a 
matter of fact, however, there are many small chains. The 
following table will give some idea of various chains in the field. 
It has been difficult to obtain the statistics for this tabulation, 
which is at best an approximation. 



Company 



Head office 



No. of stores 



F. W. Woolworth Co 

S. S. KresgeCo 

McCrory Stores Corp 

S. H. Kress 

Metropolitan Stores 

McLellan Stores Co 

W. T. Grant 25^ Stores 

P. C. Murphy, 

Duke & Ayers, Inc 

Graham Latimer 

F. & W. Grand 5, 10, 25jzf Stores. . . 

Morris 5 & 10^ Stores 

J. J. Newberry & Co . , 

Spurgeon Mercantile Co 

A. L. Duckwall Stores Co 

H. L. McElroy Co 

National 5, 10 & 25iif Stores 

Read Stores Co 

Trick Bros. Co 

Charles Tremayn's Stores 

Kuhn's 5, 10 & 25jzf Stores 

Wm. H. Cobb 

Greene Bros 

Taylor, Knobel Co., Inc 

Trimmers Stores 

Hested Stores Co 

John W. Tottle, Ba 

A. A. Grimes 10 cent Stores Co. . . . 

F. E. Nelson Co 

L. J. Everett Corp 

W. W. Joseph 5 & 10 

Schulz Bros. & Co 

J. Da Silva 

Neel Cunningham, 

Acme 5 & 10 cent Stores 



New York, N. Y. 
Detroit, Mich. 
New York, N. Y. 
New York, N. Y. 



New York, N. Y. 
New York, N. Y. 
Pittsburgh, Pa. 
Dallas, Texas 
Ottumwa, Iowa 
New York, N. Y. 
Bluffton, Ind.. 
Stroudsberg, Pa. 
Chicago, 111. 
Abilene, Tex. 
Bowling Green, Ky. 
Omaha, Neb. 
Kansas 

Benton Harbor, Mich. 
Ashley, Pa. 
Nashville, Tenn. 
Sharon Hill, Pa. 
Lowell, Mass. 
Tacoma, Wash. 
Carlisle, Pa. 
Fairbury, Neb. 
Baltimore, Md. 
Kansas City, Mo. 
Manchester, N. H. 
Jamestown, N. Y. 
Pittsburgh, Pa. 
Chicago, 111. 
Freeport, N. Y. 
Chicago, 111. 
Philadelphia, Pa. 



1,189 

199 

152 

150 

150 

50 

45 

43 

29 

20 

19 

19 

18 

15 

12 

11 

11 

11 

9 

8 

8 

7 

7 

7 

6 

6 

6 

6 
6 
5 
5 
5 
5 
5 



5 ({• 10 CENT CHAINS 365 



■two stores, but the above list is sufficient to give an idea of the 
competition. The five and ten cent store field seems to be 
essentially the small town of which there are so many in Pennsyl- 
vania and the Middle West. 

Most of these stores never advertise and thus local chains 
are not known beyond the precincts of the territory they serve. 
The store is usually well located, painted in brilliant colors, 
usually red, and its window display well taken care of. 

The F. W. Woolworth Co.— F. W. Woolworth made himself 
one of the best known men in America out of nickels and dimes. 
He lived to see the completion of the Woolworth Building, the 
highest edifice in the world, and the opening of the chain's thous- 
andth store on Fifth Avenue, New York. The story of his 
rise to success has often been told, but a book dealing gener- 
I ally with the subject of the chain stores would be incomplete 
I without it. 

I Mr. Woolworth was born in Rodman, Jefferson County, New 
i" York, in 1852. He was the son of a farmer and was brought up 
' on a farm. But his ambitions lay along business lines. He 
I took a course in a commercial college at Watertown, New York, 
and then went to work with the drygoods firm of Augsbury & 
Moore at Watertown. The first three months he received no 
salary. Then he was paid $3.50 a week. After two and one-half 
years he was receiving $6 a week. W. H. Moore, when he was 
earning $10 a week in 1877, gave him an opportunity to rearrange 
the stock in the store. He did this, making up a five cent table 
with a price card inviting customers to take their choice. Mr. 
Moore was induced to back a five cent store in Utica, New York, 
but sales were not large enough to carry the store. It was closed. 
Woolworth immediately started another store in Lancaster, Pa., 
which sold out over 30 per cent, of the stock on the first day. Sales 
for the first year were $6,750. This was the first five and ten 
cent store in successful operation. 

Mr. Woolworth was wise enough to see the vast possibilities 
ahead of him, but he had no organization and no financial backing. 
He first took his brother, C. S. Woolworth, into partnership with 
him in a store in Harrisburg, Pa. This store was unsuccessful. 
It was closed and another opened in Scranton, Pa., which quickly 



366 CHAIN STORES 

established itself. In July, 1886, a small office was opened in 
New York. 

The early growth of the present Woolworth chain was due to 
the training of men in the organization who later established 
chains of their own, culminating in the final merger of 1912. 
S. H. Knox, Mr. Woolworth's cousin, went in with Mr. Wool- 
worth, and was associated with him for five years until 1889, 
when he started for himself. 

Carson H. Peck was next taken from the Utica store and was 
brought to New York to help manage the stores and buy mer- 
chandise. F. M. Kirby started in with C. S. Woolworth in 
Scranton, Pa., where his entire office furniture was an old dry- 
goods box. Earle P. Charlton started with Mr. Knox and chose 
the New England field for exploitation, beginning business for 
himself in 1896. After the division of the stores, Mr. Charlton 
extended his activities to California and the Pacific Coast. Thus 
from the Woolworth organization has developed five successful 
chains. The national aspect of the Woolworth chain has already 
been discussed in connection with the merger of 1912. 

Hubert T. Parson, now president of the F. W. Woolworth 
Company, started with Mr. Woolworth in 1892 as an accountant. 
He became secretary of F. W. Woolworth & Co., and at the 
time of the merger naturally became secretary of the enlarged 
company. 

The Woolworth chain, like the Liggett chain, is far ahead of 
all competitors in the field, and like the Liggett chain, is a combi- 
nation of stores. While the Liggett stores have invaded England, 
the Woolworth stores have gone into Canada. 

Five and Ten Cent Store Policies. — More than any other 
type of chain retailing organization, with the exception of the self- 
service store, the five and ten cent store relies on the goods to 
sell themselves. The constant object of the chain management 
should be to secure articles which sell easily. And practically 
the whole secret of the five and ten cent stores^ selling program 
is display. Beginning with the windows, which are change^ 
weekly, the whole store is arranged with the one idea of dis- 
playing goods to the best advantage. Each counter is a minia- 
ture store in itself with articles arranged according to their 
display value. Traffic routes should be and ordinarily are studied 



5 ct 10 CENT CHAINS 



367 



with a view to arranging the location of the merchandise. Men- 
tion has ah-eady been made of the necessity of having jewehy 
in the front, and the poHcy of putting household goods in the 
basement. 

The fundamental rule, therefore, for a five and ten cent store 
is to choose merchandise which will sell and display it where the 




Fig. 57. — Selling peanut brittle through Woolworth store. 

public can see it to the best advantage. 

The second fundamental is the facilitating of sales by having 
the customer pick out the article desired and handing it to the 
salesgirl with the money. 

All five and ten cent stores are cash-and-carry. 

The window display of the five and ten cent store chains is 
always attractive, because of the number of articles displayed, 
the brilliant coloring, or the idea behind the display. Figure 57 
shows a window display in the Woolworth store at Los Angeles, 



368 CHAIN STORES 

California. The large card carries the words ''We sold ninety 
million pounds of candy last year.'^ The safe in the center of 
the display was made entirely out of peanut brittle and was an 
exact duplicate of a real office safe. The combination and 
handle were made of white candy, as was also the lettering on 
the top of the safe. Coins were tumbling out of the safe into 
the large plate, made also of peanut brittle. The idea behind the 
whole display was that the public could bank on Woolworth 
candy as evidenced by popular approval in the shape of the 
ninety million pounds of candy sold the year before. 

The Labor Problem. — The five and ten cent store normally 
has t o contend with lack of interest and ignorance on the part of 
the sales girls. The lack of interest is due to the small wages 
paid and the ignorance is, in great part, due to the large labor turn- 
over. The low wages have been caused by a general feeling that 
since the goods were of such a nature that no sales effort was 
necessary, the class of girl hired could be of an inferior type. 
The natural result is an inefficient clerk. 

The New York State Department of Labor investigators found 
that thieving was included by almost every manager as one of his 
greatest problems. The universal display of goods and indis- 
criminate use of cash registers make thieving comparatively 
easy. Both salesgirls and the public take things. One manager 
resorted to weekly inventories and shrinkage reports to check up 
losses apparently due to thieving. One store manager placed an 
empty box, done up carefully in paper and string, on a front 
counter. It promptly vanished and in the course of a half hour 
22 of these empty boxes had disappeared. 

A great deal of the ignorance, dishonesty, and lack of interest 
among the salesgirls can undoubtedly be removed if the turn- 
over is stabilized, and by the introduction of carefully planned 
methods of employment, as suggested in the chapters dealing 
with personnel problems. 

Wages paid are ordinarily as low as possible. The high 
turnover tends to create plasticity in wages. The five and ten 
cent store will pay just enough to give it a sufficient supply of 
girls, with rarely any attempt at making them permanent workers. 

The following tabulation shows the wages of women employees 
in a representative five and ten cent store in a small city in 



5 cfc 10 CENT CHAINS 



369 



New York State, as tabulated l)y tlic^ New York State Depart- 
ment of Labor, division of Women in Industry. 



Women's Wages in a Representative 5 and 10 Cent Store in a Town 

OF THE Second Schedule 

1915-1921 



Wage rate 


1915, 
number 

of 
women 


1916, 
number 

of 
women 


1917, 
number 

of 
women 


1918, 
number 

of 
women 


1919, 
number 

of 
women 


1920, 
number 

of 
women 


1921, 
number 

of 
women 


$4- 4.99 

5- 5.99 

G- 99 


10 

8 
8 

1 

1 
1 


8 
4 

7 
2 

1 
1 


2 
19 


2 
11 


11 
4 
3 
2 
2 
2 

1 

1 


4 




7- 7.99 

8- 8 99 




i 
[ 

L 




9- 9.99 




10- 10.99 

11- 12.00 


9 

7 


12- 12.99 








13- 13.99 




14- 14.99 


4 


15- 15.99 




16-16.99 


1 


17- 17.99 




18- 18.99 




19- 19 99 


1 


20- 20.99 












Total 


29 


23 


26 


24 


26 


19 


22 


Median wage 


$5.56 


$5 


.88 


$6 


76 


$6.86 


$8.38 


$10.00 


$11.22 



With the advance in wages from 1915 on, the number of em- 
ployees fell off. While there were 29 in 1915, there were but 19 
in 1920. That is, the decrease in number of employees nearly 
kept pace with the wage increase. It would be interesting to 
have figures on sales in this store to see whether higher wages 
were conducive to sales efficiency or the opposite. 

There is a tendency in the five and ten cent store chains, as 
in department store and other retaihng agencies, to better the 
condition of the salesperson. It is recognized, at least in theory, 
that they have a right to a living wage and the policy of store 
managers to make a good showing by reducing salaries of his 
salesgirls to the minimum is frowned upon, and justly so. 

24 



370 



CHAIN STORES 



Hours. — There is no set time for opening or closing five and ten 
cent stores, In general, they conform to the custom of the com- 
munity. As a rule, stores in large cities open at nine o'clock and 
close at five or six, but in small cities and towns the hours are 
apt to be longer. In the majority of small towns the stores must 
remain open Saturday afternoon while in cities they usually 
close during the summer. Stores of the same chain, one in a 



Women 



Men 



Women 



Men 



Women 



Men 





WEEKLY HOURS 




^^^^^^^^^^^^^^^^^H 


48 and under 
20.80% 


Over 48 and thru 54 
79.11% 




■^^^^^^■//////// 


48 and under 
18.61% 


Over 48 and thru 54 
56.57% 

DAILY HOURS 
Monday thru Friday 


Over 54 
24.82% 


^^^^^^M 



8 hours and under (lower limit 7i hours) 
69% 



Over 8 hours 

(upper limit 9 hours) 

30% 



8 hours and under (lower limit 7 J hours) 

47% 

Saturday 



Over 8 hours (upper limit 11 hours) 
52% 



8 hours and under 

(lower limit 7i hrs.) 

20% 



8 hours and under 
(lower limit 7i h.) 

18% 



Over 8 hours (upper limit 1 1 J hours) 
79% 



Over 8 hours (upper limit 12 hours) 
81% 



Fig. 58. — Schedule of working hours in five and ten cent store chains. 



residential district and one in a business district, may keep 
different hours although in the same city. Independent stores 
are likely to keep longer hours than the chain stores. 

The amount of actual sales in j&ve and ten cent stores is small 
before 10 a. m. but clerks must be on hand at 8:30 or 9 a. m. to 
prepare for the day's business, restock counters, etc. Customers' 
begin to come in large numbers from 11 a. m. on. 

Figure 60 is taken from the New York Department of Labor 
investigation and shows the various working hours of men and 



5 & 10 CENT CHAINS 371 

women for the entire week, for Monday through Friday, and for 
Saturday alone. 

Approximately 80 per cent, of the women worked over 48 
hours a week. From Monday through Friday 30 per cent, worked 
more than 8 hours a day but with an upper limit of 9 hours. 
Sixty-nine per cent, worked under 8 hours but at least as much as 
7^4. The men worked longer, 52 per cent, of them working over 
8 hours with upper limit of 11 hours. On Saturdays it was appar- 
ent that everybody was worked to the limit. Sixteen per cent, 
worked 11 hours a day and 51 per cent, worked 10 hours. 

The best wages were found to be in stores with the shortest 
hours, and workers were paid less where hours were longest. 

Price and Manufacturing. — Before the war, some chains had 
gone up to a 25-cent limit but a great many of them remained at 
the 10"Cent limit. Now the F. W- Woolworth Co. is practically 
alone in pursuing the ten cent policy. All its competitors, al- 
though still calling themselves five, ten, and twenty five cent 
chains, in reality have boosted the price as high as one dollar or 
over. It was discovered that the average sale of the department 
store is under one dollar and the chains immediately capitalized 
this point and branched out more in the line of dry goods and less 
in that of crockery and glass. 

That this price widening has been successful is proved by the 
record of the stores that have followed this policy, particularly 
the Kresge organization. But that goods can still be made and 
sold at retail for ten cents is also conclusively proved by the 
Woolworth organization, the profits of which have steadily gone 
on. There is evidently a field for both types of chains. The 
Kresge stores and others following the higher price policy are 
able to offer goods for sale which naturally the Woolworth stores 
cannot do. But there are many staple articles which can be 
made to retail at ten cents and these will always prove a definite 
drawing card, even for the chains with higher-priced policies. 

While the war forced many chains to raise their price Hmit, 
the Woolworth Co. adopted the pohcy of manufacturing those 
things which it could not induce others to manufacture. When 
the war made it impossible to get any more D.M.C. crochet 
cotton, it induced a manufacturer to devote his whole spinning 
output to making crochet cotton which the Woolworth chain 



372 CHAIN BTORES 

put out under the private brand name of ^^Woolco.'' By 
following out this policy of having articles manufactured under 
contract exclusively to meet their own demands, the Woolworth 
organization is taking a long step forward. 

The small variety chain cannot hope to practice such 
economies, but it has the advantages and the disadvantages of 
the fixed price. Unquestionably the low price appeal of the five 
and ten cent store has proved its greatest sales asset. 

The Manufacturer and the "Five-and-Ten." — It was a long 
time before manufacturers could be brought to see the advantage 
of producing articles that could be* retailed for ten cents. It is 
true that all manufacturers cannot modify their products to meet 
this need, but there are a great many that can, and many of these 
are doing so at the present moment. 

It is a rule of selling that the best known article, and the 
one with the best reputation, will sell better than the unknown, 
unheralded product, no matter how good the latter may 
be. Therefore, manufacturers must come up to the standard of 
excellence set by the five and ten cent stores. Their product must 
sell itself, and they must pave the way for this sale by publicity, 
and they must keep the way paved so that this article will sell. 
The weak point so far has proved to be when the manufacturer 
desired to sample his article where its hold was weakest. This is 
in direct opposition to the policy of the chain to sell it where 
it is strongest. The natural result is that, as all the stores in the 
chain do not necessarily sell the same articles, the samples are 
sold only where the demand proves satisfactory, and the 
manufacturer is brought up sharply where he was in the beginning. 
His product will sell only where his publicity has been successful. 

Publicity must precede distribution through ten cent store 
chains. Otherwise the samples cannot compete with already 
established lines. 

Mention has been made elsewhere of the value to the manu- 
facturer of this sampling and the publicity it gives the product. 
The customer in the ten cent store sees an article on display- 
with a familiar name. It costs only ten cents. She buys it, 
likes it, and the next time it is more than likely she will purchase 
a full-sized package through the regular channels. 

Sampling pays both the ten cent stores as well as the manufac- 



4 



5 & 10 CENT CHAINS 373 

turer. It gives him the prestige incident to carrying a well 
known brand. It relieves him of the imputation of retailing only 
cheap articles. 

Stock. — The five and ten cent store is and should be an exact 
reflection of the community's likes and dislikes. This is easier in 
the case of individual five and ten cent stores because of the wider 
scope allowed the manager in selecting his goods. Allowance also 
is made for small communities, where naturally stock must be 
more closely watched with regard to its turnover, than it is in 
cities where slower moving articles can be merchandised 
profitably. 

Five and ten cent chains frequently grant temporary con- 
cessions to manufacturers. They are considered excellent pubh- 
city and in many cases serve as a drawing card for the store rather 
than as an attempt to sell the goods. The arrangement ordinarily 
is that after the concessionaire moves on, the chain is given the 
agency and a certain percentage of profits made during the 
concession. 

Permanent concessions very often form miniature chains within 
chains. This may be in the case of the music counter which is 
run by a special company having a branch in each of the stores. 
Such a department is considered an added attraction and an 
inducement for customers to come to the store. A singer will 
often draw a crowd to the store. One chain grants a grocery 
concession in its stores as a drawing card. 

Conclusions. — The newcomer in the variety field has much to 
contend with — strong competition, efficient methods, operating 
economy, large stock, etc. But there are also some points in his 
favor. By carefully choosing his location he may be sure of a 
certain percentage of trade. The five and ten cent store as a 
non-advertiser must rely on location. A customer will not 
normally walk out of his way to trade at one five and ten cent 
store rather than at another. He goes to buy a certain staple 
article and he expects to find it at any five and ten store 
rather than at a particular one. 

The customer should also be able to procure a standard stock 
to sell within the prescribed price limits. But such a venture 
necessarily demands a certain minimum of capital without which 
it would be folly to begin. 



CHAPTER XXV 
DRYGOODS AND CLOTHING CHAINS 

The selling of drygoods and clothing, shoes, hats, etc., has, 
from the earliest times, always been an important retaihng activ- 
ity and it is to be expected that the chain should have made 
considerable inroads in these fields. Whenever the question 
of public taste enters the selling equation, however, there are 
new difficulties to surmount. The ordinary forms of clothing are 
not convenience goods, but rather are shopping lines. Therefore, 
the turnover is likely to be slowed down. A customer does not 
come in and say ^^I shall take this or that.^^ He says ^^Let me 
look at this or that,'' and, if it does not suit, the customer goes 
away. Therefore, the problem of the chain retailer of drygoods 
and clothing is to pick out only those lines which the majority 
of people will choose. That is, there must be no ultra styles, 
there must be no odd sizes, and the stock must be limited in 
supply of seasonal goods to what surely can be sold. Chain 
drygoods and clothing chains cannot afford to purchase far 
ahead. The Penney chain, which has been the most successful 
in the drygoods field, makes it one of its cardinal policies to buy 
no more than is immediately needed. 

Another point which may cause difficulties to the drygoods 
chain is a difference of demand in different sections. This can be 
overcome only by allowing the local manager considerable lati- 
tude in his choice of stock. Although there may be a central 
purchasing organization, still that body acts in the closest 
cooperation with the local stores, and buys only what is certain 
to be approved by local managers. Even shoe manufacturers 
running their own local retail stores are careful to consult the 
local manager in advance of manufacture about styles for the" 
coming season. 

In the case of shoe chains, the type of demand may be different 
in one section of the town from what it is in the other. Hat 

•374 



DRYGOODS AND CLOTHING CHAINS 375 

chains, haberdashery chains, and clothing chains all have many 
seasonal problems to meet. 

This type of chain retailing shopping lines has to do a great 
deal of advertising, and consequently, it is possible that in some 
cases location may not play so important a part. In the 
Penney chain, for example, the appeal is through price and quality. 

Shoe stores, however, retailing cheap shoes, which come 
practically under the class of convenience goods, must find 
suitable locations. All stores, of course, must locate in the 
section devoted to the trade they wish to capture. A shoe 
store retailing quality ladies^ shoes would be out of place in the 
financial district. 

In the case of the dry goods store, the control is far more 
decentralized than in the case of the haberdashery, the hat, or 
the shoe store. The dry goods store usually has but one link 
in a town, while the other types of store have several. In 
general, the manager of the dry goods store hires his own clerks, 
chooses, if not purchases, his own merchandise, pays his incidental 
expenses, attends to local advertising, etc. 

Even where chains have gained strong hold in drygoods and 
clothing lines, the general policy has always been to sell only 
the standard styles and sizes and at low or moderate prices. 

The Drygoiods Chains. — There are but two dry goods chains 
with a large number of unit stores, the Penney and the Perkins 
chains. But there are several organizations, such as the Asso- 
ciated Drygoods Co., and the May Department Stores, whose 
gross sales mount up into many millions. Thus two types of 
chain drygoods stores may be distinguished. 

1. The small-unit type. This class carries lower-priced 
merchandise, standard styles and sizes, employs few clerks, is 
located in small towns, generally in the South and Middle West, 
Pennsylvania, and New York. Purchasing is ordinarily done at 
headquarters in this type of chain, and close watch is kept of 
individual stores by careful accounting methods. This type of 
drygoods store comes in direct competition with the small 
independent drygoods stores in medium-sized towns. 

2. The large unit type. These are found in the large cities, 
and carry a much more diversified and better line of goods. 
The control however, of the central organization oyer the 



376 CHAIN STORES 

member stores is much less. In some cases, it is merely financial, 
limited to stock ownership in a holding company, and there is 
much question whether this control is sufficient to entitle the 
organization to be called a chain. 

The largest field in the drygoods line seems to be that offered 
by the small towns. The chain store can usually offer a much better 
stock than its local competitor, and by careful watching of sales 
can shift merchandise around in order to avoid loss, yet at the 
same time secure adequate turnover. 

Following is a list of the most prominent chain drygoods stores 
as compiled by the Fairchild Company : 

No. OF Stores 
Affiliated Retail Stores — Pittsburgh, Cleveland, St. Louis, 

Milwaukee, etc 12 

Associated Dry Goods Co., New York 9 

Belk Bros. Organization — North Carolina 17 

Buchanan Co., Hillsdale, Mich. — Illinois 8 

Broadwell's, California 4 

Clarke Brothers, Pennsylvania 19 

Consolidated Drygoods Co., Western Massachusetts and 

up-state New York 5 

W. P. Chamberlain Co., New Hampshire and Vermont. . 8 

Cole Bros., Missouri and Kansas 6 

Cherry's, California, Oregon and Washington 6 

Chaffee, central New York State 4 

Dives, Pomeroy & Stewart, Pennsylvania 5 

Efirds Department Stores, Inc., North and South 

Carolina 19 

Emrich chain, Illinois 6 

D. G. Fowler Co., Pennsylvania and Indiana 7 

Graham, Sykes Co., Texas and Oklahoma 16 

J. M. Gidding Co., New York, Duluth, Philadelphia, and 

Cincinnati 4 

Goodnow-Pearson Co., Fitchburg, Mass 13 

Gilmer's Inc., North and South Carolina (controlled by 

United Retail Stores Corp.) 18 

Khne's, Middle West 4 

Irwin Cloak Co., Ohio and Missouri 3 

M. Luria & Co., up-state New York 9 

Lynch-Fuller Corp., western New York 5 

May Department Stores Co., Middle West 4 

Mercantile Stores Corp., New York National 25 

W. H. McAllister, Sycamore, 111 18 

Parke, Snow, Inc., Boston, Mass 8 

J. C. Penney Co., Middle West and West 313 



DRYGOODS AND CLOTHING CHAINS 377 

No. OF Stores 

D. Price & Co., New York 3 

Perkins Bros. Co., Texas 350 

Rorabaugh Co., Kansas, Illinois and Oklahoma G 

Ross Stores, Inc., New Jersey and New York 5 

D. G. Ramsey Bros., Kansas and Missouri 5 

Smith Bros. Co., Pennsylvania 6 

John Stillman, Michigan and Indiana 4 

Albert Steiger Co., Springfield, Mass? 7 

Seitner & Co., Canton, Ohio 3 

Weiler Syndicate, Indiana, Illinois, and Ohio 7 

This list, like other lists of chain stores, is not complete because 
of the constant changes which are taking place in the chain 
store field. Old chains are constantly adding new links, absorb- 
ing other stores or chains, or new chains are rising up. 

Gilmer^s, Inc., as noted in the list, has been acquired by the 
United Retail Stores Corp. It is too soon as yet to tell whether 
the methods which made the United Cigar Stores Co. so success- 
ful can be applied with equal profit to a drygoods chain such as 
Gilmer's, which sells in the medium-sized southern cities, such 
as Winston-Salem and Durham, North Carolina, and Roanoke 
and Lynchburg, Virginia. 

The drygoods field is still the field of the small chain, and the 
question has not been settled how far the chain idea can be 
applied to the drygoods store, properly so-called. 

Men's Wear and Haberdashery. — There have been small 
chains dealing in men's wear, mostly local, for years. It is only 
in the past few years that a number of chains have sprung up 
and spread with great rapidity. Their growth has been almost 
too large for safety; but war conditions helped them along and 
' enabled them to get on their feet before the period of deflation 
came. The chain haberdashery stores get as close as possible 
to the convenience class. A man will buy a shirt, a collar, or a 
necktie at almost any store while he will go out of his way to 
buy a suit of clothes. 

The following four chains deserve mention: 

Chain Shirt Shops, Inc., New York City 52 

Weber & Heilbroner, New York City 20 

United Shirt Shops, New York City 31 

Paramount Shirt Shops, New York City 10 



378 CHAIN STORES 

There are, in addition, a large number of small chains, with 
two, three, four, or five member stores, all apparently pros- 
perous, but showing little signs of further expansion. 

The Chain Shirt Shops, Inc. is controlled by the Phillips- 
Jones Corporation, manufacturers of shirts, etc. In a sense, 
therefore, it is a manufacturer's chain, although the control is only 
through stock ownership. The company has 25 stores in New 
York City alone, and has spread as far as Boston, Philadelphia, 
and Rochester. 

The United Shirt Shops started out in Johnstown, Pa., as the 
United Dollar Shirt Shops. This was in 1916. The rapidly 
advancing prices caused by the war made it advisable to change 
the name to the United Shirt Shops. The growth was rapid, 
and at present the chain is the third largest in the country dealing 
in haberdashery. 

The rapid growth in this field was due to an unquestioned 
need for better methods, better stuffs, fairer values, and new 
merchandising ideas. Furthermore, haberdashery seemed to be 
particularly fitted to the economies possible to effect by applying 
chain methods of purchasing and accounting. 

Jacob Kagan and A. Fred Podren have described the method 
they followed in installing an accounting system for a chain 
of retail men's wear shops. Where the chain is too small to 
maintain a warehouse, as most of them still are, goods are sent 
to the stores with memorandum of goods shipped, but with no 
prices. The manufacturer sends the office a duplicate of the 
memorandum containing, however, the cost prices. The store 
manager signs a receipt and forwards it to headquarters. To 
avoid delay, the central office, as soon as it receives notification of 
shipment from the manufacturer, sends invoices to the stores 
of the goods at retail prices, and these invoices arrive in advance 
of the goods. 

Cash received for goods sold is rung up on the cash register, 
and cumulative record of sales is thus kept. Every evening, 
the cash register readings are put on the daily cash reports, 
the difference between the previous reading and the one for the 
day in question forming gross sales for the day. The store 
manager deposits all cash at the bank and the bank teller stamps 
report in space provided. See Fig. 59. 



DRYGOODS AND CLOTHING CHAINS 



379 



On the reverse side of the form is place for all cash expendi- 
tures If paid at the store, an amount must be deducted from 
deposits at the bank, but the better way is to have them paid by 
check from the central office. 

Figure 60 shows a simple form of inventory for use in small 

FORIVf A Reverse Side, Form A 



O 







H 



CHAIN 



ABERDASHER 



Y 



SHOPS 
DAILY CASH REPORT 



Store No._ 



.Manager 



Day of Week 



Month 



Day 



Register Reading After Last Sale Today . . 

Re^ster Reading After Last Sale Yesterday 

SALES FOR TODAY . 

Expenditures (see reverse side) 

BALANCE — DEPOSITED IN BANK 



O.K.'d by 




Approved by 


Name of Bank 


(BANK STAMP) 


City or Town 




DEPOSITED BY 


PS 




CHAIN H««o«HE.v SH(I 




BOSTON. MASS. 
Date Deposited 191 




Bills 








Specie 




Checks on 




" 




" 




" 




.. 




.. 




.. 




TOTAL 









Manager: ^Please itemize your expenditures on the 
reverse — NOW. 



CASH EXPENDITURES 




Store No. , Day 


192 


Paid the following expense items: 


Help (give full details) 
















Ice Water 






Express 






Postage 






Removing Rubbisii 






Other Items (list each individually) 






























Total (carried on Reverse Side) 






Manager. 


Remarks, Suggestions, etc. 


















O 



Fig. 59. — Form of daily cash report use(i in haberdashery chain. 

haberdashery chains. Columns are provided for different-priced 
articles in the store. The quantity only is placed in the price 
column. Total inventory can quickly be found by multiplying 
and adding totals. 

This way of taking stock, according to ''The Haberdasher/' 
is quick, and supplies all information in which the accounting 



380 



CHAIN STORES 
Form B 



Store No. . 




. . Address 




























Date Time RMrisfflv R^flilind 




THAIN 


UARFRnAflHFRY 


cimDC 1 








UiAlli '■"^""■"" Jiivi *j 1 


Inventory 


^k-^'y INVENTORY 

DO WOT SIGN this Stock Sheet unless you are Sure it is ACCURATE 




69 


75 


98 
























































105 


8 


97 
























































31 


9 


2 




















































" 




71 


16 


19 






















































3» 


105 


77 




















































209 


73 


87 


























1 
























































































































































































































































































































a; 




























































:J 






















i 
























































1 
























































1 




























1 


























1 






































455 


211 


282 














1 






































§ 


^ 


S 
























































2 


2 


1 























































Reverse Side, Form B 



BOOK INVENTORY CHARGES 


INVENTORY 


BOOK INVENTORY CREDITS 


Inventory Beginning 






store No. 


Sales to Date 


1 


Shipments 






Address 


Reductions 






Journal Charges {Transfers, etc.) 






Manager 


Special Sale Reductions 






Advances 






Taken By 


Journal Credits ( Transfers, etc. ) 






Sundries 






Date — ^From to 


Sundries 












Figured By 














Physical Inventory 














Book Inventory 














Over (black ink) 














Short (red ink) 














BOOK INVENTORY 




























Summary Credits 














Balance 














Book Inventory 























Fig. 60. — Form of inventory in haberdashery chain. 



DRYGOODS AND CLOTHING CHAINS 381 

department is interested. This department (accounting) is 
interested only in the amount of merchandise represented in 
dollars and cents. Its lookout is not as to the kind of merchan- 
dise in the stores. 

The reverse side of the inventory form contains space for 
general and special information, and for book inventory charges. 

Each store manager is supposed to keep a store ledger, in 
which he charges himself for goods received and credits himself 
for cash turned in. All his entries are made at retail prices. 
In times of rapid price changes, there will be entries for mark-ups 
and mark-downs. Where goods are frequently changed from 
store to store, there should be space for transfers. 

The above system is exceedingly simple, and is not recom- 
mended for any but small chains which cannot afford the over- 
head expense necessary to install a more complex accounting 
system. This method lays the responsibility for watching the 
particular items in stock on the store manager himself as checked 
up by the district superintendent. In more complete systems, 
inventories contain detailed account of all items in stock. 

In the men's furnishing shop, as well as in the hat store and 
the shoe store, the element of salesmanship enters. Service 
is far more important than it is in the drug store, the grocery 
store, or the five- and ten-cent store. But the sale is complicated 
whenever a choice is to be made by the customer, and where the 
attitude of the clerk may mean a large or a small sale. A good 
haberdashery salesman will build up a collar sale into a shirt sale. 
The higher type of salesmanship. required, the more difficult it is 
to secure adequate control in a chain. Thus the problem of the 
personnel is even more important in stores dealing in shopping 
lines than it is in those handling convenience goods only. 

Hats. — Chain stores in the hat industry have existed for fifteen 
years, and in that course of time have expanded slowly, and not 
with the remarkable activity characteristic of the chain haber- 
dasheries. The following list shows the leading retail chain 
hatters, dealing in headgear alone. 

Stores Stores 

Sarnoff-Irving 52 Long^s Hat Stores 23 

B. H. Kaufman 50 Truly Warner 21 

Wormser Hat Stores . 36 Kenton Hats 14 

Snyder's Inc 25 Young's Hat Stores 11 



382 CHAIN STORES 

In addition to the above list, there are several local chains. 
There are also many general chain store organizations which 
carry hats, such as Browning, King & Co., the Menter stores, etc. 

The chain hat stores started by holding closely to the cheaper 
grades. Truly Warner and Kaufman have kept to a fixed price 
limit, but Sarnoff-Irving, which formerly had a $2 limit, now 
handle hats as high as $7. 

A chain hat store has to contend with the desire of the average 
customer to have a distinctive hat, while it must be the policy 
of the chain to furnish a standard hat. This explains the tend- 
ency of the chain hat stores to hold to the cheaper grades. The 
large hat manufacturers ordinarily give their agencies to inde- 
pendent hatters. 

Clothing. — This field may be divided broadly into men's 
and women's clothing. In the men's clothing field, there is 
Browning, King Co., with 28 stores, which manufacture only for 
themselves, the Rogers, Peet Co., which operate stores of their 
own and give agencies, and such chains as the Monroe Clothes 
Shops, with 11 stores in New York. The field is an exceptionally 
difficult one for a chain organization to handle successfully, 
owing to the rapid changes in style, price, etc. 

The problem of retailing women's clothing through chain 
stores is even more difficult. Nevertheless, the Bedell Company, 
of New York, operates a chain of seventeen retail stores for the 
sale of women's suits and cloaks. 

The New York Waist Co. operates a cnain of stores in New 
York and Brooklyn, selling women's waists. The National 
Hosiery Stores, with nine shops, the Gotham Hosiery Co., 
with four and some others with but two links, sell women's 
hosiery. 

Shoes. — The retailing of shoes has offered real opportunities 
for chain organization, and especially to the manufacturers of 
shoes, to start retail chains under their supervision. The 
number of small chains is legion, and there is a comparatively 
large number of moderate-sized chains. ^ 

The chain shoe field is remarkable for the number of firms 
manufacturing and at the same time managing retail stores. As 
a matter of fact, shoes are sold in six different ways : 



DRYGOODS AND CLOTHING CHAINS 383 

1. Independent shoe store, 

2. Manufacturer-owned store, 

3. Department stores, 

4. Privately-owned chain stores, 

5. Independent stores having exclusive agency for some manufacturer, 

6. Mail-order houses. 

We are concerned here only with classes 2 and 4. Class 
2 is the commonest form, and seems to find it possible to make a 
success. The privately-owned chain is at a disadvantage, and 
must content itself with retailing a cheap grade of shoes. The 
following is a partial list of chain shoe stores, both manufacturer 
and strictly retail: 

Stores 

Newark Shoe Co., Baltimore, Md 300 

W. L. Douglas Shoe Co., Brockton, Mass 107 

G. R. Kinney Co., Inc., New York City 102 

Regal Shoe Co 56 

Hanan & Sons 

George E. Keith (Walkover) 

Beck-Hazard Stores, Inc., New York City 28 

The following chains operate more than three but less than 
ten, and the list does not pretend to be complete, as there are 
many more throughout the country: 

Adler Shoe Co. Thomas G. Plant Co. 

I. Blyn & Sons Dr. Read Cushion Shoe Co. 

Bouve-Sterling Rice & Hutchins 

Edwin Clapp & Son Rival Shoe Co. 

Emerson Shoe Co. Star Shoe Co. 

Ground Gripper Co. Stetson Shops, Inc. 

London Shoe Co. United Shoe Stores, Milwaukee, Wis. 

D. Loventhal's Sons Wildfeuer Bros. 

I. Miller & Sons 

In addition to shoe stores proper, there are several chains of 
shoe repairing shops, such as Klein^s Rapid Shoe Repair Co., ii; 
New York. There are also some shoe-shining chains. 

The great problem in merchandising shoes has always been 
securing turnover in all lines. There is a choice of two evils, 
either to prune stock to bare necessities and lose customers, or to 
accept a reduced turnover. One small shoe chain has found its 
solution in reducing the time of selling a shoe to eight minutes 



384 CHAIN STORES 

per customer. If the customer cannot make up his mind in 
that length of time, he is poHtely advised to look somewhere 
else. This shoe chain has adopted a form of self-service, allowing 
the customer to put on the shoes and fit himself. In this way, 
one clerk can handle several customers at the same time. In 
spite of this innovation, the stores are making money and 
securing a turnover of ten times annually, more than twice 
what the average chain shoe store expects to obtain. 



CHAPTER XXVI 
OTHER CHAIN FIELDS 

The development of chain stores has followed the hnes of 
least resistance. First those fields were taken up and exploited 
which were devoted to the retailing of necessities and of products 
which every individual uses constantly. The grocery chain, the 
drug chain, the five and ten cent store chain, and the clothing 
and apparel chains are all in this class. 

But with the development of chain stores, with the better 
functioning of method and the cumulative force of a successful 
enterprise, the chain store idea has grown in two directions. 

1. It has been extended to the retailing of articles which 
cannot strictly be called necessities, but which many people 
find necessary to their comfort. In this class come the tobacco 
and confectionery chains, which are founded on habit, and the 
optical chain, which is based on defective vision. In many 
cases there have been long established chains in these fields, but 
with the exception of the United Cigar Stores Co., their growth 
has been slow compared with that of the grocery and five- and 
ten-cent store chains. 

2. It has been extended to the retailing of products which 
necessitate special service. In this class comes the restaurant 
chains where food has to be prepared and served. It also includes 
chains of hotels, theatres, and places of amusement which have 
successfully applied the principles of chain operation to their 
special problems. 

The Retail Tobacco Chains. — Some of the most efficient and 
profitable methods of chain operation have been developed in the 
tobacco field. The United Cigar Stores represents a case where 
a man saw opportunity and seized it. When George J. Whelan 
decided that his eight stores in Syracuse, New York, were not 
large enough to satisfy his ambition, and came to New York 
City, a new era was opened in chain store development as well as 
in retail tobacco merchandising. 
25 385 



386 CHAIN STORES 

The independent cigar stores had been losing ground steadily 
to the drug stores, the hotels, and the news stands, all of which 
carried cigars and tobacco. The cigar store Indian stood for 
all that was antiquated in retail merchandising. The United 
Cigar Stores Co. was formed in 1900, and the principles which 
it adopted at that time are still in force. Reducing the loca- 
tion of his stores to a science, Mr. Whelan went a step further, and 
in the days when personnel administration was a name without 
meaning, he drilled his men with the principal idea of having 
them render service to customers. He standardized merchan- 
dise, standardized the appearance of his stores, standardized his 
methods of accounting, and, most important of all, succeeded in 
getting his clerks interested. 

At the present moment, the United Cigar Stores Co. operates 
1,500 stores and 700 agencies. It is the second-largest chain in 
the country, surpassed in size only by the Great Atlantic & 
Pacific Tea Co. The latest major development in its history was 
its acquirement by the United Retail Stores Corporation. 
Several small chains were absorbed during the process of develop- 
ment, but, on the whole, the progress has been systematic. 
Large cities were chosen first, in which the per capita consumption 
of tobacco was highest. Then smaller centers of population were 
covered. As fast as statistics show that a community is able to 
support a United Cigar Store, one is established there. 

There is but one other important company in the tobacco 
retailing field, namely, the Schulte Retail Stores Corporation. 
In the past few years this company has expanded very rapidly. 
In 1918, with 113 stores, the company did a business of $4,000,000. 
From the same stores, in 1919, the company took in sales of 
$6,000,000, in addition to $2,000,000 from 51 stores opened 
during the year, or a total of $8,000,000, or twice the amount 
taken in during the previous year. 

The General Cigar Co. has 25 retail stores in Chicago. In 
nearly all the large cities of the country there are local chains 
with branches running from 3 to 20. But the independent stores^ 
far outnumber the chain stores as yet. 

In starting a tobacco chain, the location of the member stores 
is undoubtedly the most important consideration. Men will not 
go out of their way to buy standard brands which can be procured 



I 



OTHER CHAIN FIELDS 387 



anywhere at a standard price. Hence the corner location poHcy 
• of the United Cigar Stores Co. 

The second requisite for success is an exceecUngly rapid turn- 
over. Once in 30 days should serve as an average. This is 
necessary in retailing products on such a narrow margin of 
profit. The tobacco field has been particularly subject to cat- 
price wars in the past, but, as has been pointed out elsewhere, 
this policy rarely brings any actual advantage to the firms 
concerned. 

Candy, Confectionery, Etc. — There are some fields which seem 
preeminently suited for manufacturers^ chains, and the candy 
field is one of these. A Huyler store on one corner will not 
materially affect the sales of Huyler candy in an agency on the 
next corner. Thus the great problem of damaging agency 
sales does not cut a great figure. In the second place, a chain of 
candy stores offers a steady outlet for the company^s products 
which, from their nature, must be disposed of within a 
comparatively short time. 

As a matter of fact, candy is bought mostly by men and 
wherever they happen to be at the moment. Therefore, loca- 
tion plays an essential part in the success of the candy chain 
just as in the tobacco chain. The window display is very impor- 
tant. Windows have to be changed frequently because of the 
perishability of the product. Many candy chains arrange new 
displa^^s daily except in the case of some special seasonal display, 
which may remain a week. The message which the candy 
stores are constantly trying to emphasize is the freshness and 
quahty of their products. In the Loft stores, for example, 
candy is frequently displayed shced through the middle to give 
a further effect of freshness. 

It frequently happens that a number of chain candy stores 
are located close by each other and there is little to choose 
between the various locations. Assuming that the price appeal 
is approximately the same, recourse must be had to quality and 
service. Attractive window displays and local advertising will 
create an atmosphere of quality. Goodwill may be secured by 
good service. A candy store cannot sell too cheaply, or the 
quality will be suspected. 

The principal chains in the candy field are as follows: 



388 CHAIN STORES 

Huyler's 60 

United Retail Candy Stores 25 

Mirror 20 

Loft, Inc 23 

Schraft's 17 

Page & Shaw 17 (10 additional stores in 

Canada and abroad) 

In addition, there are a great many other chains, too numerous 
to mention, including Miller Brothers, the Goody Shops, Mary 
Elizabeth, Martha Washington, etc. 

Several chains operate lunch counters or serve light lunches 
at tables in some of their stores. Schraft^s and Huyler^s are note- 
worthy examples. This service is only practicable in stores in 
or near shopping centers. Page & Shaw, in addition to manufac- 
turing their own candy, also operate a chocolate factory and a 
box factory. 

Tobacco and candy products are fairly limited in range 
compared with grocery and drug chains, but the Nedick's 
Orange Juice Co. is even more specialized. Through 55 stores 
in and around New York it sells orange drink and nothing 
else in the way of a beverage. Other things have been tried, but 
have not proved satisfactory. Although sales fall off in the 
winter, they do not care to put in hot drinks. As a sideline, 
candy and other miscellaneous edibles are sold. 

The striking fact about the conduct of the stores is that the 
stores are open to the street. They are display and store in one. 
A uniform finish in white makes them easy to find. The fact 
that they are on the street, that there is no door to open, no steps 
to ascend or descend, has a strong selling appeal. 

Bakeries. — The bakery chain is in many respects like the 
candy chain. That is, it is dependent on location for its business 
and, the product being perishable, the problem of left-over goods 
becomes extremely important. Owing to the necessity of 
supplying fresh products to the public, the bakery chain must do 
its own manufacturing, in many cases on the premises. 

The Federal System of Bakeries of America, with approximate- 
ly four hundred stores, is the largest chain in the bakery field. 
Th(M"e are several small local chains of a few units each. The 
Federal Bakeries have picked out desirable city locations where 



OTHER CHAIN FIELDS 389 

there is a great deal of traffic, and have capitaUzed this situation 
with attractive window displays and carefully conducted mer- 
chandising campaigns. By allowing the managers wide scope as 
to amount and size of bakings, choice of hues of goods to sell, and 
other local matters, the major difficulties have been overcome. 
Almost every store is a complete manufacturing unit. The home 
office at Davenport, Iowa, supplies material for window displays, 
merchandising ideas, formulae, and necessary sales training for 
managers. The majority of the managers are trained at the 
company's own school. 

The bakery field is a difficult one since the bakery has to con- 
tend constantly with the chain groceries, which also retail baked 
goods. The success of the Federal chain, however, shows that it 
is possible to surmount these difficulties by proper attention to 
chain store principles. 

Restaurants. — As soon as we come to the restaurant field, the 
service problem is accentuated. The restaurant is the dividing 
fine between the two types of chains. The restaurant field itself 
is sharply divided into the service and self-service type. At 
present, the bulk of the restaurant chains are of the latter type, 
approximately more nearly the original chain idea of a series of 
stores selling necessities to a large number of people, the sales 
being based on low price and convenient location. 

In the service restaurants. Child's stands far in the lead. 
But it is a service chain conducted according to all the rules of 
chain store practice. It insists on suitable locations, serves 
standard low-priced food, stresses the display features, etc. This 
is directly contrary to the policy pursued by independent res- 
taurants, where a reputation for fine cooking or excellent service 
will often draw customers out of their ways. 

The self-service lunch rooms are always located on traffic. 
They will be found near railroad stations to catch early and late 
traffic, and in the business districts to catch business people 
at noon. The John R. Thompson Co. in Chicago and the Wal- 
dorf Lunch System, Inc., in Boston are the largest in the field. 
There are a great number of local and semi-local chains with from 
three to twenty branches. 

The Waldorf System is typical of the self-service restaurant 
chain. It operates over one hundred restaurants in over thirty 



390 CHAIN STORES 

cities. The first Waldorf Lunch was founded as late as 1904, in 
Springfield, Mass., with an initial investment of only $1,800. 
The first Waldorf Lunch in Boston was started in 1906. The 
chain's great growth dates from 1919, when the Waldorf System, 
with 38 stores of its own, absorbed the Kinney & Woodward 
chain, having 14 stores, and the Baldwin chain, having seven 
stores, making a total of 59. In less than two years it added 30 
more links, 20 of them from the absorption of the 11 stores of the 
Porter Capitol System, and nine from the Waldorf Co. of Provi- 
dence, R. I. 

The company has applied the policy of standardization to the 
retailing of food. The average amount of every portion is care- 
fully calculated. For example, when a customer orders hash, he 
always gets the same amount. Each serving of hash has been 
carefully measured and done up in waxed paper before being 
sent to the member stores. All baking is done in the central 
commissary which operates twenty-four hours a day. The 
average meal during 1920 was thirty cents and the company made 
less than two cents profit on each meal. But during this period 
the company served 36,000,000 meals, and from this enormous 
turnover, it was possible to make substantial profits. 

Hotels. — When we discuss the hotel chain we come to the 
largest enterprise which has yet been attempted along chain store 
principles. For example, the Hotel Pennsylvania, at New York, 
the largest hotel in the world, is a link in the Statler chain. 
The Bowman chain operates many hotels in the country. The 
United Hotels Co. of America operates 18 hotels in the United 
States and Canada. According to the Hotel Record, there are 
about one hundred so-called hotel chain systems in the United 
States, operating as many as three or four hotels under the same 
management. 

Most of the hotel systems have a common accounting and 
purchasing system. The manager of each hotel, as is nat- 
ural, exercises great authority in the hiring of help, ordering of 
supplies, adjustment of complaints, etc. But outside of materials 
comfort, the hotel chain must furnish one indispensable element, 
which is service. We have already seen how important service is 
in the mere selling of commodities. But a great part of the hotel 
sales appeal is based on service, telephone, elevator, mail, waiter, 



J 



OTHER CHAIN FIELDS 391 

almost everything the guest may desire. And the excellence of 
the service counts a great deal. Location, in other words, is not 
the entire story. A guest will have his favorite hotel of which he 
will be a steady patron as long as the service satisfies him. The 
management, therefore, tries to give uniform service in the entire 
chain, so that a guest going to another city will patronize the 
hotel owned by the same chain. 

The Statler management will accept no excuse for failure 
to carry out policies as explained in the Statler Service Codes. 
Discourtesy is not allowed under any circumstances, even al- 
though the guest be unreasonable. For example, the following 
quotation is taken from the directions to front office clerks: 

^'Mail clerks and key clerks who recognize people and remember 
their names are more valuable to us than others who do not. 

^' You know that what the guest wants (and is entitled to) is a helpful 
and interested, as well as a courteous service. You are not through 
with any transaction until the guest is satisfied ; or, if ycu cannot satisfy 
him, until you have called your superior and the matter is out of our 
hands.'' 

The Hotels Statler have considered it worth the expense to 
advertise their policies nationally as a means of acquainting the 
public with them. It is another case of the chain organization's 
ability to pick out the fundamental basis of competition and use 
it as a sales appeal. 

Miscellaneous. — The idea of a chain organization has spread 
also into widely divergent fields. But the principles of operation 
remain in all cases the same, although the stress may be laid on a 
different phase of the problem. There is the theatre chain, 
Keith and Shubert, and others. Here the success of the company 
depends upon the character of the amusements shown. Loew's, 
Inc. now operates 117 theatres. There are numerous moving 
picture chains. 

There are two successful barber shop chains in New York 
where the chief problems are labor and location. There is a 
successful optical chain with 28 stores. There are chains of 
stores dealing in automobile accessories. 

In starting a chain of enterprises of any sort the fundamental 
question is whether it is possible to apply the chain store prin- 



392 CHAIN STORES 

ciples as laid down in this volume. There is great opportunity 
existing, not only in old fields but in new and yet untouched 
fields. To capitalize these opportunities, it is necessary to heed || 
carefully the methods and practices of others who have already 
been successful. It has been the purpose of this book to set 
forth, in so far as possible, the primary rules to be observed in 
conducting any chain enterprise as illustrated by the example 
of those who have been most successful. 



BIBLIOGRAPHY 

Book References 

Principles of Marketing, Paul W. Ivey, Ronald Press, 1921. 

Marketing — Its Problems and Methods, C. S. Duncan, Appleton, 1921. 

Market Analysis, Percival White, McGraw-Hill Book Co., 1921. 

How to Run a Store, Harold Whitehead, T. Y. Crowell, 1921. 

The Employment of Women in Five and Ten Cent Stores, Department of 

Labor, State of New York, Div. of Women in Industry, September, 

1921. 
Marketing Problems, Melvin T. Copeland, A. W. Shaw Co., New York, 

1920. 
Merchandising Advertised Products through Drug Stores, J. H. Cross 

Co., Philadelphia, 1920. 
The Elements of Marketing, P. T. Cherington, The Macmillan Co., 

1920. 
Economics of Retailing, Paul H. Nystrom, Ronald Press Co., 1919. 
Fortieth Anniversary Souvenir, The F. W. Woolworth Co., 1919. 
Merchandising, John B. Swinney, one of Alexander Hamilton Institute 

business text books 1917. 
Marketing Methods, Ralph S. Butler, one of the Alexander Hamilton 

Institute series of business text books, 1917. 
Retail Buying, CHfton C. Field, Harper & Bros., 1917. 
Retail Selling, James W. Fisk, Harper & Bros., 1916. 
Ps3^chology, a Study of Mental Life, R. S. Woodworth, Henry Holt, 

1921. 
Marketing Methods and Policies, Paul D. Converse, Prentice-Hall, 

Inc., 1921. 
Personnel Administration, Tead and Metcalf, McGraw-Hill Book Co., 

1920. 
Succursales Multiples, Phillippe Moride, 

Articles on Chain Stores 

1922 

Can Executives be Picked by Mental Tests? C. S. Yoakum, Forbes 

Magazine, Jan. 21, 1922. 
The Chain Store Grocer, Alfred H. Beckmann, American Grocer, Jan. 4, 

1922. 
W. L. Douglas — A Shoemaker Who Stuck to His Last, Printers' Ink 

Monthly, January, 1922. 

393 



394 CHAIN STORES 



1921 



A Success Built Upon Dealer Cooperation — The Walkover Shoe, Printers' 

Ink Monthly, December, 1921. 
Selling Peanut Brittle, Confectionery Merchandising, December, 1921. 
How He Turned Losses to Profits, O. D. Foster, Forbes, Dec. 10, 1921. 
Possibilities and Obstacles in the Growth of Chain Stores, Men's Wear, 

Dec. 7, 1921. 
How to Maintain Control of Chain Shops, Kagan & Podren, The Haher- 

dasher, 1921. 
How King Cash Builds Stores, Business, November, 1921. 
In Retrospect and Prospect (S. S. Kresge Co.), The Financial World, 

Oct. 24, Oct. 31, Nov. 7, Nov. 14, 1921. 
O Growth of S. ^. Kresge Co., Boston Evening Transcript, Nov. 8, 1921. 
Analysis of Turnover, Howell H. Reeves, Administration, October, 1921. 
Piggly-Wiggly, How it Has Grown, R. P. Crawford, Forbes, October, 1921. 
Compiling the Selling Talks for Twenty-two Drug Stores, Felix J. Koch, 

Drug Store Merchandising, October, 1921. 
Chain Stores to Invade the Sheet Music Field, The Music Trade Review, 

Oct. 8, 1921. 
Chain Drug Stores in the United States, The Druggists' Circular, Inc., 

September, 1921. 
How One Drug Store Grew into a Chain, Louise M. Holt, Drug Store 

Merchandising, September, 1921. 
How to Make Customers Want Candy, C. L. Ketcham, Confectionery 

Merchandising, September, 1921. 
Chain Store Competition, Jay Burns, Bakers' Review, September, 1921. 
Makes Men; Money Only By-product, Forbes, Aug. 20, 1921. 
Use of House Organs in Handling Sales, Robert E. Ramsay, Administra" 

Hon, July, 1921. 
The Chain and Its Weak Link, Confectionery Merchandising, July, 1921. 
How Chain Stores Tell Which Locations Are Most Profitable, E. M. Wickes, 

Printers' Ink Monthly, July, 1921. 
Chain Store Operation, Edward Wise, Administration, March, 1921. 
When the Chain Store Gets on the Avenue, Edward T. Tandy, Printers' 

Ink Monthly, February, 1921. 
Why a Buyer's Market Hasn't Changed Our Plans, J. C. Penney, System, 

February, 1921. 
Making Five Men's Wear Stores Pay in Iowa, Chicago Apparel Gazette, 

Feb. 9, 1921. 

In Printers' Ink 

Chain of Bakeries Makes Study of Contact with Consumer, Sept. 29, 

1921, page 140. 
Why So Many Retailers Swallow the Private Brand Argument, July 

21, 1921, page 17. 



BIBLIOGRAPHY 395 

Good, Old-fashioned Brand Name Advertising, the Specific for Sub- 
stitution, June 30, 1921, page 3. 
What the United Cigar Stores Company Has Accomplished in Twenty 

Years, May 19, 1921, page 17. 
Advertising Is Determining What Products the Chains Shall Carry, 

April 28, 1921, page 136. 
An Analysis of the Chain Store by Wholesale Grocers, April 28, 1921, 

page 177. 
Starting a Chain of Retail Stores, Mar. 31, 1921, page 25. 
How to Combat ''Own Goods" Bonus in Chain Stores, Feb. 24, 1921, 

page 3. 
Should Manufacturers Run Their Own Retail Stores? No. 1, Feb. 3, 

1921, page 3. 
Should Manufacturers Run Their Own Retail Stores? No. 2, Feb. 10, 

1921, page 101. 

1920 

Piggly-Wiggly Stores: a Fast Growing Chain Stores System, W. J. 

Keary, Financial World, Nov. 29, 1920. 
United Cigar Stores, Boston News Bureau, Nov. 5, 1920. 
Great Atlantic & Pacific Tea Co., Boston Neivs Bureau, July 29, 1920, 

Oct. 23, 1920. 
Piggly Wiggly, Drij Goods Economist, Oct. 2, 1920. 
Chain Drug Stores, The Druggists' Circular, May, 1920. 
Lower Prices — Higher Profits, H. P. McBride, System, May, 1920. 
J. C. Penney Co., Boston News Bureau, May 7, Oct. 25, 1920. 
J. C. Penney Co., Dry Goods Economist, May 29, 1920. 
Co-operative Merchandising for the Retail Clothier, M. D. Kobey, 

Chicago, Apparel Gazette, April 7, 1920. 
An Insight to Chain Store Methods, J. B. Levey, The Haberdasher, 1920. 
United Retail Stores Corporation, Boston News Bureau, Feb. 16, Feb. 27, 

1920. 
Meet Chain Stores Half Way, The Haberdasher, January, 1920. 
The Chain Stores, John Morrow, Magazine of Wall St., Jan. 24, 1920. 
Schulte Cigar Stores, Tobacco, Jan. 8, 1920. 

In Printers' Ink 

Advertising's Business Partner, the Well-conducted Retail Store, Dec. 

30, 1920, page 114. 
Can Any One Plan of Marketing Monopolize Our Distributing 

System? Nov. 18, 1920, page 26. 
Chain-store Methods to Revive Dead Country Stores, Sept. 16, 1920, 

page 133. 
Visualizing the Magnitude of a Business with Chart Illustrations, 

Sept. 9, 1920, page 107. 
Even Doughnut Holes, This Man Finds, Can Be Advertised, Aug. 19, 

1920, page 53. 



396 CHAIN STORES 

A Sidelight on Landing the Big Customer, June 10, 1^20, page 93. 
Drug Chain Concentrates Prescription Business in Centrally Located 

Stores, June 3, 1920, page 125. 
Anti-chain Advertising Must Reach Fundamentals, May 13, 1920, 

page 145. 
There's Happiness in Every Box, May 13, 1920, page 25. 
The Chains and Local Advertising, April 15, 1920, page 231. 
United Retail Stores Invade Many Fields of Merchandising, April 15, 

1920, page 153. 
National Campaign of Advertising for Kresge Stores, April 1, 1920, 

page 17. 
The Winchester Plan — A New Step in Standardization, March 18, 

1920, page 77. 
A Chain Store Testifies for Advertising, March 4, 1920, page 178. 
Creating Business for One's Competitors. Feb. 26, 1920, page 188. 
Wanted— Two Men of Vision, Feb. 19, 1920, page 180. 
S. S. Kresge Company Uses Paid Advertising, Feb. 19, 1920, page 49. 
How to Keep Informed on Chain-store Developments, Feb. 19, 1920, 

page 44. 
The Advertising End of the Chain-store Problem, Jan. 29, 1920, page 

157. 
Is Collective Buying the Answer to the Growing Chain-store Menace? 

Jan. 15, 1920, page 18. 
New Rockefeller and Whelan Drug Chains Worry Manufacturers, 

Jan. 8, 1920, page 65. 

1919 

Is This to Be the Era of the Chain Hat Store? The American Hatter ^ 

November, 1919. 
Fifty Dollars a Square Foot or Move, (Truly Warner), The American 

Hatter, November, 1919. 

In Printers^ Ink 

Why I Make My Employees Partners, Oct. 16, 1919, page 3. 

Chain Methods Make Overhead an Investment, May 29, 1919, page 

109. 
How F. W. Woolworth Built His Wonderful Distributing Machine, 

April 17, 1919, page 25. 
The Small Chain a Growing Market for Manufacturers, April 10, 1919, 

page 101. 
United Cigar Stores May Operate Exclusive Candy Stores, March 27, 

1919, page 20. 
Booklet to Celebrate Woolworth's 40th Anniversary, March 6, 1919^ 

page 10. 
A Chain Store Man's View of Service, Feb. 27, 1919, page 108. 
The Five- and Ten-cent Store as a Means of Sampling, Jan. 30, 1919, 

page 37. 



BIBLIOGRAPHY 397 

Shall Service be Scrapped or Capitalized? Jan. 23, 1919, page 6. 

1918 

Big Business of the Five and Ten Cent Stores, American Induairieaj 

Dec. 17, 1918. 
The Day of the Chain Store, Advertising and Selling, May 1918. 
Sebastian Spering Kresge, Harry Davis, Magazine of Wall Street, May 11, 

1918. 
Story of the Chain Stores, J. G. Donley, Magazine of Wall Street, April 

13, 1918. 
The Piggly Wiggly Stores and their Unique Advertising Copy, Judicious 

Advertising, April, 1918. 

In Printers^ Ink 

Chain Stores or Exclusive Agents? Dec. 19, 1918, page 163. 

Five- and Ten-Cent Stores are now Boldly ''Trading Up,'' Dec. 19, 

1918, page 129. 
I'll Sell Anything, Drug Chain Owner Says, Sept. 5, 1918, page 17. 
Fifth Avenue Trade as Diagnosed by the Woolworth Co., May 30, 

1918, page 56. 
Tremendous New Market Springs from Five- and Ten-cent Expansion, 

May 23, 1918, page 3. 
How Liggett Built up the United Drug Co., Feb. 21, 1918, page 90. 

1917 

Man who at Twenty-eight Suddenly Had a Great Idea, (Woolworth) 

F. A. Patterson, American Magazine, October, 1917. 
Systematizing Window Displays for Chain Drug Stores, F. A. Koijane, 

American Druggist, August, 1917. 
Consumer and the Chain Grocery Store, C. F. Adams, Outlook, Jan. 24, 

1917. 

In Printers^ Ink 

In Piggly- Wiggly Stores the Product Has to Sell Itself, Dec. 20, 1917, 
page 17. 

Philadelphia Jobbers and Retailers to Meet Chain-store Methods, 
Oct. 25, 1917, page 37. 

Methods of the Man Who Founded Chain of 3,500 Stores, Sept. 13, 
1917, page 83. 

Chain Stores Advertise as Economy Measure, Aug. 9, 1917, page 119. 

Higher Priced Goods in Variety Stores Mean Bigger Outlets for Manu- 
facturers, May 31, 1917, page 3. 

Chains Making Independents Better Merchants, April 5, 1917, page 
101. 

Increase of Selling through Irregular Channels, March 29, 1917, page 
71. 



398 CHAIN STORES 

Does the Consumer Really Want Service, After All? March 29, 1917, 

page 93. 
Why Woolworth Is Starting a Store on Fifth Avenue, Feb. 15, 1917, 

page 65. 
New Light on the Small Store versus the Big Store, Jan. 18, 1917, page 

94. 

1916 

Big Dreams that Came True, H. Rood, Everijhodifs, November, 1916. 

Five and Ten Cent Store Costs, System, June, 1916. 

How I Watch the Sales of a Chain of 1,000 Stores, George A. Whelan, 

S2jsteni, May, 1916. 

In Printers' Ink 

How Shall the Advertiser Regard the Newly Forming Chains? Dec. 28, 

1916, page 88. 
United Cigar's National Advertising Doubles Ricoro Sales, Dec. 14, 

1916, page 3. 
Chain-store Romance and Reahty, Oct. 12, 1916, page 136. 
Hosiery Store Shows which Way the Wind is Blowing, Oct. 5, 1916, 

page 8. 
Jobber Advertises to Offset Chain-store Competition, Aug. 24, 1916, 

page 100. 
A Mail-Order Business that Proved the Stepping-stone to a Women's 

Specialty Chain, Aug. 10, 1916, page 45. 
How Pci^ney Chains Find and Train Profit-Making Partners, May 4, 

1916, page 41. 
The New Regal Policy of Dealer Co-operation — April 20, 1916, page 41. 
United Drug Company's New Premium Plan — February 24, 1916, 

page 131. 
The Chain Store a Tonic with the Advertisers' Help, Feb. 17, 1916, 

page 45. 
How Jewel Tea Co. Built Resources of $16,000,000 in Sixteen Years, 

Feb. 3, 1916, page 17. 
A Chain Store Man on the Chances of the Independent Retailer, Jan. 

27, 1916, page 38. 

1915 

The Chain Stores, Barnard Powers, Magazine of Wall Street, November, 

1915. 
Whelan — Millionaire statistician, K. Banning, System, January, 1915. 

In Printers' Ink 

How a Woman Built a Million Dollar Chain of Stores, Dec. 16, 1915^ 

page 11. 
Building Big Mail-order Business on Retail Chain Foundation, Dec. 9, 

1915, page 3. 



BIBLIOGRAPHY 399 

Chain Stores Find the West a Difficult Field, Oct. 28, 1915, page 93. 

Grocery Chain Store Practices, Oct. 14, 1915, page 58. 

How the Site-buyer for United Cigar Stores Works, Sept. 2, 1915, 

page 68. 
Campaign for a Five- and Ten-cent Store Chain, June 17, 1915, page 46. 
Kresge Chain Reaching Out for Business by Mail, May 20, 1915, 

page 70. 
The Five- and Ten-cent Store Outlet for Advertised Products, Jan. 

14, 1915, page 3. 

1914 

Rapid Increase of Chain Stores, Current Opinion , December, 1914. 
James C. Penney, F. C. Henderschott, System, June, 1914. 
Money Sticking Out, Edward M. WooUey, McClure's Magazine, January, 
1914. 

In Printers' Ink 

Manufacturers Forced to Start Chain Stores, Dec. 31, 1914, page 69. 

Government Investigating the Chains, Dec. 10, 1914, page 84. 

Chain-store Trading in England, Oct. 1, 1914, page 75. 

Kellogg's Fight on Chain Stores, Sept. 17, 1914, page 23. 

The Future of the Chains, Sept. 17, 1914, page 75. 

Whelan Plans to Get Prosperity Here Double Quick, Sept. 3, 1914, 

page 84. 
What Do You Know about Chain Stores? July 23, 1914, page 140. 
How Riker-Hegeman is Generating Power for Rapid Expansion, 

July 9, 1914, page 3. 
Copy that Boomed a Chain of Restaurants, June 11, 1914, page 82. 
Inside Look into One Chain-store System, June 4, 1914, page 45. 
Competitive Tactics of Chain Stores, April 9, 1914, page 82. 
No Monopoly of Good Business Methods, Feb. 12, 1914, page 89. 
Chain Store Series (Fourteen Articles), Sept. 10-Dec. 24, 1914. 

1913 

Retail Chain Store Evolution, Printers' Ink, Aug. 7, 1913. 

Chain Stores, R. A. Bruce, Printers' Ink, July 10, 17, 31, Aug. 7, 1913. 

F. W. Woolworth's Story, Leo L. Redding, World's Word, April, 1913. 

1912 

The Tower of Nickels and Dimes, Hearst's Magazine, October, 1912. 
Chain Store Economies Practicable in Many Lines, John H. Hanan, 
Printers' Ink, Mar. 21, 1912. 

1911 

Welding First Links in a chain store system, John P. Wilder, Printers' 

Ink, Dec. 7, 1911. 
Gigantic Woolworth Chain, Printers' Ink, Nov. IG, 1911. 



INDEX 



A 



Acme Cash Basket Stores, 93 
Acme Tea Company, 19 
Advertised lines, 80 
Advertising, active and passive, 171 

agency, 176 

allowance for, 166 

appeal, 171 

cooperative, 177 

copy, 176 

department, 165 

determined in conference, 166 

financial, 306 

influence of location, 34 

institutional, 171 

local, 176 

media of, 167 

merchandise, 174 

movement towards, 167 

newspaper, 165 

personnel, 165 

policies, 176 

preliminary, 169 

price, 176 

principles of, 176 

profit from, 166 

results of, 167 

standardization of, 176 

tendencies, 164 
Agency, advertising, 176 

problem of for chain, 324 
American Stores Company, 27, 76, 
334 

price policy, 136 
Annual report from, 292 
Appearance of store, 69, 70 
Arkins, F. J., 137, 208 
Arrangement of stock, 61 
uniformity in, 62 
26 401 



Arrangement of warehouse, 88 
Authority of store manager, 235 

B 

Bakery chains, 388 

Banking methods of chain stores, 238 

Beckmann, A. H., 339 

Bedell Company, 382 

Bond, cash for manager, 238 

Bonding of employees, 316 

Bonus, for low expenses, 151 

forms of, 196 

on inventory, 152 

to girls in five and tens, 216 

to personnel, 189 
Book, cash receipts, 275 

cost record, 250, 254 
Branch, definition of, 3 
Brands, advertised, 8 

manufacturers', 14 

opposition to, 120 

private, 80 

reasons for pushing, 121 
Brewster, Kingman, 302 
Browning, King & Company, 321, 

322, 382 
Bulk articles, tendency away from, 

118 
Bulletins, character of, 223 

daily, 222, 223, 254, 265 
Bureau of Personnel Research, 199 
Bushnell, George H., 150 
Business conditions, effect on sales, 

104 
Butler Brothers, 135 
Butler, James, 19 
Buyers, authority of, 80 

expert, 78 

importance of, 78 



402 



INDEX 



Buyers, keep cost record books, 250 

opportunities to help manufac- 
turers, 82 

policy of, 79 

sources for executive informa- 
tion, 283 
Buying, ahead, 77 

cash, 77 

habits, 51 

offices in New York, 79 

policies, 79 



Candy chains, importance of loca- 
tion, 387 

number of, 388 

reasons for, 387 
Capitalization, form of, 298 
Cards, stock record, 91, 247 
Cash and carry policy, advantages 
of, 153 

tendency towards, 22, 117 
Cash purchasing by chain, 76 
Cash receipts book, 275 
Chain buyer {see Buyer). 
Chain Shirt Shops, 320, 378 
Chain stores, cash and carry, 22 

competition, 117, 124 

definition, 3 

financing of, 296 

growth of, 40 

importance of product, 26 

influence of the War on, 135 

insurance for, 311 

local, 22 

location, 34 

manufacturers', 318 

manufacturing by, 29 

national, 20 

principles of, 3 

real estate department of, 
33 

safeguard against monopoly, 
119 

sectional, 21 



Chain stores, self-service, 23 

tendency to combine, 26 
Chamber of Commerce of the United 

States, 138 
Change, of price method, 254 

sheets, 266 
Charlton, Earle P., 366 
Childs, description of, 389 

Fifth Avenue store, 53 

profit from advertising, 167 
Christmas, influence, of on sales, 

99 
Cigar stores {see Tobacco chains). 
Clerks, importance of, 183 

payment of, 190, 193 

sales policy of, 206 

wage rates of, 194 
Clothing chains, 382 
Codes, price, 90 
Colgate & Company, 83 
Combination, tendency towards, 16, 

123 
Comparative statements, 292 
Competition, analysis of, 128 

bases of, 124 

character of, 117 

price, 134 
Concessions, 59 

Confectionery Merchandising, 170 
Conferences, importance in morale, 

222 
Connor, John T. Company, 22 
Contests, 222, 224 
Contingent fund, 196, 239 
Control, executive, 283 

methods of, 13 
Conventions, 222 
Cooperation, of managers and clerks, 

194 
Cost keeping, 250 

of doing business, 147 
Costs of chain stores, 148 
Counter cards, 68, 166 
Counter display, 67 
Courtesy, necessity of in making 

sales, 200 
Credit, elimination of, 149, 153 



J 



INDEX 



403 



D 



Daily bulletin (see Bulletin). 
Daily executive report, 284 
sales fluctuations, 103 
stores report, 272 
Decker, Chas. M. Brothers, 22 
Definitions, 3 
Deliveries, elimination of, 149, 153 

to stores, 89 
Dennison Manufacturing Company, 

320 
Departments, advertising, 165 
emplo3^ment, 205 
grouping of, 62 
personnel, 198 
premium, 113 
purchasing, 79 
real estate, 42 
Direct purchasing, 74, 127 
Discipline, definition of, 229 
Display, as basis of competition, 125 
counter {see Counter), 
principles of, 63 
standardization of, 208 
window (see Window display). 
Distribution of capital stock, 303 
Dividends from chain stores, 298 
Dotson-Kerwin stores, 107 
Douglas Shoe Company, 168 
advertising of, 174 
selling policy of, 322 
Dow Drug Company, 209, 343 
Drug store chains, advertising of, 316 
analysis of, 345 
commission on private 

brands, 194 
daily reports, 240 
growth of, 345 
influence of product, 361 
location, 360 
number of, 342 
of items carried in, 
105 
overhead of, 150 
policy of locating, 34 
prescription policies, 111 



Drug store chains, turnover require- 
ments for, 142 
Drug Store Merchandising, 209, 213 
Druggists Circular, 346 
Drygoods chains, 374 

decentralized control, 375 

types of, 375 
Dry Goods Economist, 336 



E 



Earnings of chains, 298, 299 
Easter, influence, of on sales, 101 
Editor of house organ, 228 
Employees (see Personnel). 
Employment department, 205 
Equipment, extra, 60 

manufacture of, 60 

standardized, 60 
Executive, functions of, 183, 184 

information, 186, 284 

reports, 186 
Expense, bonus for low, 151 

eliminated, 153 

items of, 149 

keeping down, 151 



Federal Bakeries of America, bulle- 
tins of, 224 

carry-over problem of, 103 

contests of, 225 

cooperative sales, 113 

equipment of, 60 

interior of, 60 

novelty products. 111 

number of stores, 388 

window display of, 66 
Fifth Avenue Association, 53 
File, temporary invoice, 260 
Filling requisitions, 90 
Financial advertising, 306 
Financial responsibilities of manager, 

238 
Financing, methods of, 304 

necessitated by growth, 302 



404 



INDEX 



Financing, out of earnings, 303 
principles of, 296 
small chain, 302 
Fire insurance, 310 
Five and ten cent chains, abandon- 
ment of ten cent limit, 
75, 155 
activity at Christmas, 

100 
authority of manager, 

237 
bonus system for, 216 
characteristics of, 363 
field of, 363 
freedom from depression, 

104 
hours, 370 
labor problem of, 193, 

368 
location of, 39 
methods of display, 63 
methods of remunerating 

personnel, 189 
monthly sales of, 100 
net earnings of, 155 
policies of, 366 
price problem, 144 
products for, 108 
purchasing policies of, 

75, 80 
rate of turnover, 141 
salesmanship in, 195 
seasonal fluctuations, 101 
size of, 60 
stock problem of, 106, 

373 
wages in, 368 
Fluctuations in sales, daily, 103 

seasonal, 100, 102 
Front, standardized store, 59 
Functions of executive, 183 
Future dating, 76 

G 

General Cigar Company, 386 
Gilmers, Inc., 28, 377 
Ginter Company, 335 



Goodwill, basis of competition, 125 
employee, 230 
necessity of, 169, 170 
value of, 125 
Gotham Hosiery Company, 320, 321, 

323 
Great Atlantic & Pacific Tea Com- 
pany, founding of, 19 
growth of, 124, 332 
manner of growth, 41 
national scope of, 20 
private brands, 120 
sales fluctuations, 103 
small stock holdings, 304 
Grocery chains, accounting for, 268 
authority of manager in, 237 
business, precarious nature of, 

119 
cost of doing business, 152 
degrees of standardization, 

337 
field of, 330 
growth of, 332 
history of, 334 
jobber and, 340 
location of, 38, 338 
loss leaders, 110 
manufacturers' attitude, 339 
methods of paying personnel, 

190 
net profits of, 156 
number of, 330 

of items carried, 105 
purchasing policy, 78 
quality, 331 

restricted products type, 331 
seasonal fluctuations in, 102 
self service type, 331 
size of, 58 

stock problem of, 120 
tendency towards packaged 

goods, 108 
warehouse inventory, 93 
Gross profit, definition, 134 ^ 

Growth, financial, 297 
of chain idea, 302 
principles of, 14, 40 



INDEX 



405 



H 



Haberdasher, The, 379 
Haberdashery chains, 377 
Hamburger, Mort, 103 
Hanan Shoe Company, 19 
Handbills, advertising methods, 180 
prepared by advertising depart- 
ment, 166 
use of, 168 
Hartford, George H., 19, 120, 187, 

334 
Hat chains, characteristics of, 382 

number of, 381 
Hotel chains, 390 
Hotel Record, The, 390 
House organ, editor of, 228 
policy of, 228 
requisites of, 227 
Huyler's, 387 



Interest charges, 138 
Inventory, book value of, 253 

made by traveling superin- 
tendent, 187 

periodic, 276 

perpetual, 91 

physical, 92, 253 

sheet, 276 

warehouse, 91 
Investment, profits on, 138 
Invoice, temporary, 260 



Jacobs Pharmacy Company, 360 

Jobber, grocery, 340 

tendency to eliminate, 74 
warehousing function of, 86 

Jones Tea Company, 19 

K 



Ideas, obtaining sales, 215 
Independent store, aversion to chain, 
117 
basis of competition, 124 
gross profit of, 156 
inability to purchase in 

quantity, 127 
position of, 118 
Information, obtaining, 186 
Inspectors, functions of, 206, 214 
Institutional advertising, 171 
Insurance, automobile, 315 
broker, 309 
building, 311 
burglar, 315 
definition of, 309 
employers' liability, 314 
fire, 310 
group, 315 
hold up, 315 
plate glass, 314 
policies, 313 
real estate, 311 
rent, 312 



Keller, D. C, 209 

Kirby, F. M., 366 

Knox, S. H., 366 

Kresge, S. S. Company, 
earnings of, 299 
growth of, 19, 124 
history of, 300 
policy of, 371 

Kress, S. H. earnings of, 299 

Kroger, B. H., 126, 335 

Kroger Grocery & Baking Company, 
histor}^ of, 335 
increase in sales, 297 
number of items carried, 105 
policy of store appearance, 70 
purchasing policy, 75, 76 
sectional character of, 22 



Labor problem, 193 
Law of average sale, 157 
Letters to personnel, 222 
Library Bureau, 320, 322 



406 



INDEX 



Liggett, Louis K. Company, growth 
of, 343 

history of, 343 

receipts, 360 

sectional character, 20 

substitution in, 122 

turnover policy, 142 
Lines, number carried, 107 
Lists, price, 265 
Locality, as basis of competition, 126 

future of, 35 

influence of, 35 

warehouse, 86 
Locations, city, 40 

experts in, 42 

importance of, 33 

of goods carried in stock, 61 

principles of, 4, 34 

quality, 53 

suburban, 40 
Loews, Inc., 391 
Loft, Inc., 387 
Loss leaders, 109, 132 

M 

Management, as basis of competi- 
tion, 126 
Managers, authorit}^ of, 235 
choice of, 233 
district, 186 
duties of, 235 

financial responsibilities of, 238 
judged by results, 203 
knowledge of stock, 239 
local purchasing, 136 
responsibilities of, 237 
salaries of, 190 
setting quotas for, 143 
shifting, 204 
Manufacturers and chain stores, 81 
Manufacturers' chains, accounting 
for, 327 
advantages of, 318 
advertising for, 328 
brands, 328 
definition of, 318 



Manufacturers* Chains, disadvant- 
ages, 321 
organization of, 322 
price cutting, 328 
problem of personnel, 325 
purchasing for, 327 
sales policies, 327 
Manufacturing by chain stores, 29 
Mark down, 138 
Mark-up, basis of, 143 

control of, 132 

definition, 132 

voucher, 255 
Mayflower Stores, 22 
Media of advertising, 167 
Member stores (.see Stores). 
Men {see Personnel). 
Men's wear, 77 
Men's wear chains, discussion of, 

377, 378 
Merchandising policies, 5, 109 
Mergers of chain stores, 26 
Merrill, Charles E., 143 
Merrill, Lynch & Company, 143, 304 
Methods of display, 63 

of pricing, 134 
Metropolitan Stores, Inc., 61 
Miller-Strong Drug Company, 343 

360 
Model store, 207 
Monopoly, impossibility of, 119 
Montgomery Ward, 299 
Morale, definition of, 220 

elements of, 220 

enforcing, 229 

importance of, 12 

influence of on discipline, 230 

methods of creating, 221 

nature of good, 229 
Mykrantz Company, 343 

N 

National advertising, 167 
National chains, 20, 86 
National Drug Stores, 110, 342 

growth of, 342 

personnel records, 203 



INDEX 



407 



National Drug Stores, requisites for 

managers, 234 
National Hosiery Stores, 382 
Nedick's Orange Juice Company, 388 
Net profits, 134 

Newspaper advertising, importance 
of, 165 
results of, 168 
use of space, 169 
Nicholls, Charles Jr., 35, 39, 50 

George A., 170 
Number of lines carried, 107 



O 



Office manager, source of executive 

information, 283 
One cent sales, 109 
Organization, of chain stores, 25 

purchasing, 73 
Overbu}dng, evils of, 138 
Overhead, cutting down, 151 

variations in, 150 
Owl Drug Company, 360 



Packaged goods, tendency towards, 
108 
saving from, 108 
Packages, importance of for display, 

67, 68 
Parson, Hubert T., 366 
Pasters, 67 
Pearson, A. C, 166 
Peck, Carson H., 366 
Penney, J. C, 76 

Penney, J. C. Company, banking 
policy of, 238 
date of founding, 19 
financing of, 302 
increase in sales, 297 
method of growth, 41 
of remunerating personnel, 

191 
of securing managers, 234 
operating expense of, 148 
overhead of, 150 



Penney, J.C. Company, policy of, 375 

purchasing, 77 

rate of turnover, 141 

real estate policy, 33 

stock distribution, 191 
People's Drug Stores, 168 
Per capita consumption of (obacco, 

40 
Perpetual inventory (see Inventory). 
Personnel, administration, 198 

basis of competition, 126 

bonding of, 316 

character of, 183 

department, 198 

methods of paying, 195 

morale of, 221 

principles of, 11 

recruiting, 204 

remunerating, 188 

tests, 199 

training, 206 
Piggly Wiggly Company, absence of 
window trim, 69 

advertising of, 167, 173 

arrangement of store, 62 

branded goods only, 81 

color scheme of exterior, 60 

description of, 23 

display features of, 63 

growth of, 336 

methods of remuneration, 190 

operating costs of, 148 

policies, 336 
Plate glass insurance, 314 
Policies, insurance, 313 

merchandising, 109, 127 

promotion, 186 
Policing of retail outlets, 268 
Population, movement of, 41 
Premiums, redemption of, 114 

use of, 113 
Prestige, importance of, 138 
Price, at which goods are billed to 
stores, 134 

at which products shall be sold, 
131 

basis of competition, 127 



408 



INDEX 



Price, of sales policy, 108 

changes, 254 

codes, 90 

cutting, 136, 140 

lists, 265 

range, 135 

tags, 63 
Pricing, methods of, 134 

principles of, 8 

retail, 134 

theory of, 132 

uniform, 264 
Principles, of growth, 14 

of promotion, 201 

of purchasing, 6 

operating, 3 
Printing plant, 165 
Private brands {see Brands). 
Products, importance of in display, 
108 

influence on manufacturers' 
chains, 324 

number of, 105 

rules governing choice of, 105 

salesman's knowledge of, 209 

sold by chain stores, 25 

tangible and intangible, 104 
Profits, calculating, 279 

determination of, 131 

due to frequent turnover, 139 

fluctuations in, 156 

gross, 134 

individual store, 156 

methods of increasing, 157 

miscellaneous, 160 

net, 134, 154 

percentage of, 140 
Promotion policies, 12, 186, 201 
Publicity, varieties of, 171 
Purchaser, type of, 39 
Purchasing, advance, 77 

basis of competition, 129 

cash policy, 76 

local, 80 

principles of, 6 

process of, 259 

records, 245 



Purchasing, seasonal, 78 

tendency towards direct, 73 

Q 

Quality, necessity of, 107 
standardized, 108 

R 

Real estate departments, 33, 42 
Receipts, banking of cash, 238 
Records, 14 

daily, 186 

personnel, 202, 204 

purchasing, 245 

sales, 7 

warehousing, 245 
Regal Shoe Company, 69, 322 

agency policy of, 324 

merchandising of, 326 
Rent, as item of expense, 149 

insurance, 312 

ratios, 50 

weekly, 287 
Reports, annual, 292 

contents of, 285 

daily, 240 

executive, 186, 284 

managers', 240 

promptness in making up, 284 

store, 272 

weekly, 287 
Reputation of chain, 138 
Requisitions, blanks, 90 

filling in, 90 
Restaurant chains, 389 
Retailer, independent {see Inde- 
pendent). 
Rewards for employees, 227 



Salaries, 138 

as item of expense, 148 
relation to overhead, 151 

Sale, law of average, 157 



INDEX 



409 



Sales, equalizing clerk, 203 

fluctuations, 103 

forcasts of, 103 

influence of weather on, 103 

novelty, 113 

one cent, 109 

people (see Clerks). 

policies, 127 

problem, 99 

records, 7 

seasonal, 110 

special, 103 
Salesmen, training of, 206 
Saunders, Clarence, 336 
Salvage, account, 257 

vouchers, 257 
Sampling, 82, 372 
Sam Seelig Stores, 58, 140 

bonus system of, 152 
Schedule for counting stock, 248 
Scholtz Mutual Company, 360 
Schulte Retail Stores Corporation, 

386 
Sears Roebuck and Co., 299 
Seasonal peaks, 102 

purchasing, 78 

sales, 110 

fluctuations, 99 
Sectional chains, 20 
Self service stores, 23 
Service, rules of, 213 

selling, 213 

standardization of, 206 
Sherwin-Williams Company, 323 
Shifting men, 204 
Shoe chains, 382 
Shoes, methods of selling, 383 
Singer Sewing Machine Company, 
advertising policy of, 167 

sales policy, 322, 326 

stock ownership of, 304 
Sites, establishing value of, 35 
Size, of store, 57 

of warehouse, 87 
Sizes, odd, 107 

of product, 107 

standardization of, 107 



Spalding, A. G. & Brothers, 322 
Specialists, 188 
Standard, of quality, 81 

price, 35 
Standardization, 30, 58, 70 
Staples, inert character of, HO 
Statements of comparison, 292 
Statler, hotel chain, 391 
Stewart, Albert I., 152 

A. T., 137 
Stock, appearance of, 69, 70 

arrangement of in store, 61 

arrangement of in warehouse, 
88 

counting of, 248 

knowledge of, 239 

record card, 91, 247 
Store, color of, 60 

entrance, 41 

front, 59 

model, 207 

profits, 156 

size of, 57 

training clerks for, 211 
Streets, importance of different 

sides, 39 
Substitution, abolition of, 120 

definition of, 121 

investigation of, 122 
Summer, influence of, on sales, 19 
Summerfield, S. E., 320 
Sun-Maid Raisin Company, 113 
Superintendents, function of, 186 

qualifications for, 187 
Swanton, R. C, 132, 137 



Teamwork, 230 
Tests, for personnel, 199 
Theatre chains, 391 
Tobacco chains, 385, 386 

per capital consumption of, 
40 
Trading stamps, use of, 114 
Traffic, analysis of, 36 



410 



INDEX 



Traffic, direction of, 38 

movement of in store, 62 

sex of, 38 

volume of, 38 
Training men, 12, 206 
Turnover, analysis of, 137, 138 

basis of competition, 128 

definition of, 131, 137 

increasing, 140 

keeping up, 137 

minimum, 141 

principles of, 8 

rate of, 131, 136, 141 142 

securing in all lines, 

waste due to slow, 138 
Types of chain stores, 19-26 

U 

United Cigar Stores Company, addi- 
tional lines carried, 106 

aim to cut gross profits, 155 

clerk policy of, 213 

date of founding, 19 

distribution of seasonal peaks, 
102 

district managers, 186 

Fifth Avenue store, 53 

history of, 386 

location of, 34, 40 

manner of growth, 41 

merger, 28 

methods of remuneration, 189 

national scope, 20 

premium department of, 113 

promotion policy, 184, 202, 203 

rate of turnover, 141 

real estate policy of, 50 

rewards for service, 227 

size of member stores, 58 

standard price, 136 

standardized front, 59 

traffic analysis, 36 

turnover policy, 143 

window display, 64 
United Drug Company, 30 

national advertising of, 108 

private brands of, 121 



United Retail Candy Stores Corp- 
oration, formation of, 28 
effect on Cigar Stores, 106 
method of advertising, 170 
United Retail Chemists' Corpora- 
tion, 342 
United Retail Stores Corporation, 
description of, 29 
merger, 28 
monopoly, 119 
United Shirt Shops, 378 



Voucher, salvage, 257 

W 

Wages, 138, 194 

Waldorf System, Inc., advertising 
of, 171, 306 
description of, 389 
Walgreen Company, 213 
Warehouse, location of, 86 

mark-ups and mark-downs, 254 
maximums and minimums, 93 
size of, 87 

superintendent's duties, 88 
Warehousing, principles of, 7, 86, 96 

records, 245 
Warner Brothers Compan}^, 321, 323 
Waste due to slow turnover, 138 
Waterman Fountain Pen Company, 

320 
Wattley, Ralph B., 110, 234 
Weather, influence of on sales, 103 
Weekly change sheets, 266 

specials, 109 
Whelan, George J., 4, 40, 58, 186' 

213, 227 
Wholesale prices to stores, 134 
Williams, Carl O., 93 
Winchester Stores Company, 30, 132 
Window display, of model store, 208 
organization of, 64 
principles of, 67 
types of, 66 
Window trimmers, 165 
Windows, importance of clean, 69 



INDEX 



411 



Women, training of, in chain stores, 

215 
Woodworth, R. S., 220 
Woolworth, Frank W., 109, 12(3, 

144, 233, 305 
Woolworth, F. W. Company, daily 
sales of, 103 
date of founding, 19 
distribution of stores, 20 
Fifth Avenue store, 53, 62 
growth of, 123 
history of, 365 

maintenance of ten cent limit, 
75, 135 



Woohvorth, F. W. Company, manner 
of growth, 41 

manufacturing poHcy of, 371 
merger, 26 

methods of remuneration, 188 
monthly sales, 100 
national scope of, 20 
net earnings on sales, 155 
promotion policies, 201 
purchasing policies, 75 



Yawman & Erbe, 320 
Yoakum, C. S., 199 



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